14 NOV 2022 – Monday Market Highlights – Transcript

Nick Morgan
Good morning, its Monday the 14th of November and I’m Nick from Milford

The key economic news from last week was most certainly the US inflation print that was released Friday morning and came in softer than expected.
Headline inflation grew 0.4% m/m and 7.7% y/y. This is compared to consensus estimates of 0.6 and 7.9% respectively.
Core inflation, a metric that excludes the volatile sectors food and energy grew by only 0.26% for the month well below consensus of 0.5%
Importantly the breakdown showed not only a slowdown in the prices of goods, but also services.
Although a positive sign that inflation may be moderating, when looking deeper into the CPI print it continues to be the household staples such as shelter, energy and food that are the key contributors.
There was a significant reaction across multiple markets off the back of the data print with a massive equity rally leaving the S&P closing up 5 and a half % and the NASDAQ up 7%.
There was a material reaction in the rates market with the yield on the 10 year treasury note down 31 basis points and the 2 year treasury note down 30 basis points.
There were also material moves in the currency market with the US dollar currency index DXY down 2.3%.

Continuing in the US we also had the University of Michigan consumer sentiment out for November. It was the lowest print since July falling to 54.7, well below consensus of 59.5. The current economic conditions index also dropped to 57.8 from 65.6.
Inflation expectations for the year ahead increased to 5.1% up from 5 and inflation for the next 5 years increased to 3% from 2.9%.
All components of the index declined m/m and it was noted that the instability in sentiment is likely to continue as a reflection of an uncertain global backdrop.

In NZ we had the RBNZ’s Survey of Expectations which showed a material increase in the 2-year ahead inflation expectation data up from 3.07% to a 30-year high of 3.62%. This will likely lock in expectations of a 75bp hike at the November meeting.

Moving closer to home, we had the NAB business confidence index out for October. They noted that Conditions remained strong but that business confidence weakened. The index declined from 5 to 0, falling below the long run average, and the key drivers continued to be rising interest rates and a negative global economic outlook.
Finally in Australia we had the consumer inflation expectations data, rising to 6% in November up from 5.4% last month. Remember that the consumers inflation expectations print is a survey of consumers’ median expectations for price growth over the coming 12 months.

Another key event last week was the fall of one of the largest crytpo exchanges, FTX. On Wednesday last week there was a public news article that claimed a crypto hedge fund, owned by the FTX founder Sam Bankman-Fired, held a large amount of FTX’s own cryptocurrency. The currency known as FTT had also been used at the hedge fund as collateral for further loans.
Off the back of this news, the largest crypto exchange, Binance, announced that they would sell their entire FTT holdings, causing the price to crash and traders hastily sell out in fear of another fallen crypto company.
FTX then entered a liquidity crunch as investors requested withdrawals for approximately $6b over three days. FTX has now announced bankruptcy and Sam has resigned as CEO.
These recent developments have caused havoc in the crypto market intensifying the price drop across majority of the various coins.

Now turning to Equity News

We Q3 earnings for NAB and Westpac out last week. Both results were broadly as the market expected with net interest margins in line with consensus estimates and bad debts better than expected. Although the outlook for this sector is starting to look tougher.
Another key piece of News was origin energy receiving a non binding bid from Brookfield Infrastructure and EIG Partners. The bid was made at an offer price of $9, a 55% premium to the previous close of $5.81. The consortium has until the 20th of December to conduct DD and make it a binding offer and the board has already indicated it will accept at $9.
Once the bid is binding the deal would also need to be approved by both the Australian Competition & Consumer Commission and Foreign Investment Review Board.

Looking at the week ahead

On Tuesday we have the RBA meeting minutes and any commentary regarding future rate hikes will be key to look out for. On Thursday we have Australian employment data, an important dataset that the RBA will be watching very closely.
In the UK we have both employment and CPI out next week. The market is forecasting inflation of 1. 7% m/m up from 0.5% last month.
Finally we have the US retail sales data out on Thursday, the market is forecasting growth of 0.9% m/m up from 0% last month.

Thanks for listening, we’ll see you next week.