8 AUG 2022 – Monday Market Highlights – Transcript

Will McVeagh
Good morning. It’s Monday, the eighth of August and I’m Will from Milford. Global markets continue to grind higher last week is any news seems to be good news for investors. The NASDAQ has now rallied nearly 20% off its June lows, while the s&p 500 has rallied to 13% and the ASX 210%. Much of this rally seems to have been driven by hedge funds and systematic type strategies such as CTAs and vol targeting funds covering short positions. Goldman Sachs is my shorter basket, which tracks the top 50 shorted stocks in the US has rallied over 30% in the last month. Pre this recent rally, many hedge funds and systematics were positioned very defensively at max short, which means the flows become very one sided. Now that some of the shorts have been covered, it should allow markets to move more freely in both directions. The RBA raise the cash rate target by 50 basis points to 1.85% last Tuesday, and a move widely expected by the market. The statement contain very little new information, and perhaps the only thing of significance was a slight lift in the central bank’s inflation forecasts. The bank central forecast is for CPI inflation to be around seven and three quarter percent over 2022, a little over 4% over 23 and around 3% over 2024. This compares with a forecast of 7% in 2022. Previously, the central bank also released this statement of monetary policy on Friday, which contains a more detailed set of assumptions the bank uses to make decisions. The bank expects the cash rate will rise to 3% by year end, with the unemployment rate falling to 3.25%. On the growth front, the RBA expects that the GDP growth will grow by 3.25% over 2022, then slowing to grow at 1.7%. Over the next two years. These growth forecasts are lower than the central bank previously expected. As the RBA continues to raise rates, the flow on effect house prices are starting to be noticed. The CoreLogic data released on Monday showed Sydney house prices dropped by 2.2% in July the sharpest decline in 30 years, while Melbourne fell 1.5% In the month. This shows a trend starting to develop so be watched closely as the market expects further rate hikes to come, which could lead to a further acceleration and house price declines. The Bank of England hiked rates the most in 27 years on Thursday, warning that the new UK Prime Minister faces more than a year of recession. Officials raised the benchmark rate by 50 basis points to 1.75% and said all options are on the table at the next meeting. Governor Andrew Bailey boosted his inflation forecast seeing a peak of 13.3% in October, and outline plans to sell about 10 billion pounds of bonds a quarter beginning as soon as next month. US non farm payrolls on Friday continue to show a very strong labor market with large beats to expectations. The unemployment rate fell to 3.5% from 3.6% expected while the economy added 528,000 new jobs, there’s a market expectation of 250,000 hourly earnings also beat putting pressure on the dovish retort. The market has adopted post the recent FOMC meeting. And this has continued to struggle with the tight walk between quickly tightening financial conditions and the possibility of a recession, which could cause central banks to slow in their rate hiking cycle. Turning to stop news IFM increased this stake and toll road operator at the citeria last week, only a week after walking away from takeover talks. Al leaks and I fm couldn’t come to an agreement to progress talks. So this increase state was a surprise. This takes ifms Holding to 19% which sits in a good position to either launch a takeover or push for a board seat. Chemicals company Orica raised $725 million to buy excess mind technology which provides navigation data and drilling services for the mining industry. The purchase price of excess was only 350 million. So this was seen as a fairly large override by America. The rise was done at $16 A share which was a 7% discount where it was trading pre raise. The market didn’t like the deal, perhaps because they were raising so much with the stock reopening at $15.50 Post rise and continuing to slip lower on Friday. inflation continues to bite in Australia and as many people can relate to rising food prices are one of the area’s being most acutely felt. Last week, we got an update on price rises for Woolworths and Coles which confirmed what people are feeling will ease increased prices on over 2000 of their products and an average increase of 13% while Kohl’s increased prices on average 12.7% when averaged across their entire product line. The saw an increase of about 1% on the month.

This week, we have plenty focus on both the macro releases and as Australian company reporting season kicks off. companies to focus on their reporting include IAG, Telstra, racemate, CVA, Suncorp and Mirvac. Investors will be interested in how companies have feared the last half in the face of rising costs in the slowing consumer, but equally interested in corporates views on the outlook. On the macro front, the key piece of data the market is waiting for as the US July inflation numbers out on Wednesday night. The market is expecting headline month on month CPI growth to be 0.2% versus 1.3% In June, while the year on year to Easter 8.8% versus 9.1% Previously, and your core inflation however, is expected to increase slightly to 6.1% from 5.9% prior, a strong month on month number will be likely to shake markets who expect that we’re now over the peak in inflation, particularly after the strong nonfarm payrolls print last Friday. The US will also receive PPI data later in the week. Thanks for listening. That’s all for this week. Have a great week.