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Episode details

Will McVeagh
Good morning. It’s Monday, the fifth of September and I’m Will from Milford. Equity markets fell last week as investors reassessed the path forward for central banks post fed Governor drum pals hawkish Jackson Hole speech. Bonds also sold off as rates moved higher, driven by investors views that global central banks are going to continue hiking rates aggressively to get inflation under control. Adding to the weakness on Friday night, was news that the Nord Stream gas pipeline would not be restarted as expected, causing fresh energy concerns for Europe. And what mini split was a political move from Russia. Oil prices also fell sharply last week, falling nearly $10 A barrel from their peak to see WTI finished the week and $87 per barrel. The weakness was driven by a risk off environment as we wait for an update on the US Iran oil deal that is due to be announced any day now.

Australian retail sales released last week continued to show a very strong consumer and what was a surprise print to the upside. The 1.3% month on month increase this market expectations of 0.3% was a big beat with almost every category was positive. Department stores and clothing lead the way with 3.8% and 3.3% rises respectively, while the only category to fall was household goods. This data clearly shows that the higher mortgage rates are not impacting spending patterns and lends support to the argument that the RBA can continue hiking rates aggressively. US employers added jobs that are healthy, yet more moderate pace and August offering little evidence of any kind of definitive slowdown. Non Farm payrolls increased more than expected rising by 315,000. Following a revised 526,000 advance in July. The jobless rate unexpectedly climbed to 3.7% from 3.5%. Previously as participation increased, the report may still nudge the Fed towards a third straight jumbo size rate hike later this month. Last Thursday, CoreLogic released their Australian monthly house price data, which showed a trend of continued falls nationally, house prices fell 1.6% In August, the largest falls since 1983. Following a 1.3% Fall in July, let’s tax the annual pace of year on year growth to 4.7%. The slowdown in Sydney and Melbourne was more pronounced with three month annualized growth, dropping the negative 21.7% and negative 14.3% respectively. With faster falls for houses. The more affordable capitals of Brisbane and Adelaide which had been resilient and now also seen falls. Australian company reporting season wrapped up last week after a busy few weeks of announcements. Overall, the reporting season was fairly positive. However, many companies still remain hesitant to provide forward guidance in such an uncertain environment. I too milk had a very good result, jumping nearly 10% On the day and ending the week up 18%. The results showed good second half momentum as they wouldn’t share it and the China infant formula segments and have a clear plan on the way forward. Many in the market hope this could be a turning point for the company that has struggled in recent years. We’ve also had a strong result last week, jumping 8% on Wednesday after they announced strong cash flows hit of market consensus and bookings returning to pre COVID levels in 2023. This followed other travel names such as cuantas reporting very strong demand and improved pricing as COVID restrictions have eased. Documents software company nitro received to take that offer last week from potente, a capital following potentially requiring a 20% blocking stake and Nitro. The bid was at $1.58 a shear a 40% premium to the last traded price, however, still a long way from the $4 level it traded out late last year. The board quickly rejected the offer, noting that it doesn’t reflect the value of the company and tries to take advantage of volatility in markets. Interestingly, nitro closed at $1.62, which was above the 158 but price signaling investors either think a higher offer will come or the borders right and its valuation of the company.

This week, central bank decisions will be top of mind for investors starting tomorrow where the RBA will announce the latest monetary policy decision when most economists are expecting a 50 basis point hike to the cash rate from Governor Lowe. This would take the rate to 2.35% A quick rise from only 10 basis points in May and closer to what many expect as a neutral rate. Plenty of focus will be on loads comments around the path forward for rates. While the sharp rises in recent months have been fairly consensus. The path forward is not nearly as clear for the market. One view is that the RBA could now to either slow or pause the rate hikes to give a chance for the hikes to flow through and dampen inflation. While the opposing view is that the RBA will need to keep lifting rates aggressively to ensure that inflation does not become entrenched. market pricing currently is rates peaking in September next year. On Thursday evening, the European Central Bank will be up where analysts expect to 50 basis point hike. However, with market futures pricing 65 basis points there is a decent chance they could hike 75 burps this hike will take ECB rates positive for the first time since 2012. However, they don’t look like stopping there with markets pricing another 2.35% of hikes by July next year. Also in Australia, we’ll get the second quarter GDP numbers this week, where the market is expecting growth of 3.5% and increased from 3.2% in the previous quarter. This will see quarter and quarter GDP rise from 0.8% to 1.1%. Thanks for listening. Have a great week.

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