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Commodity prices fall on Chinese growth concerns

Markets:

  • Local and global equity markets were flat to weaker this week on concerns regarding rising global recession risks, with Chinese economic growth fears hitting commodity prices.

  • In local stock news, Macquarie Group has reported a net profit after tax of $4.7 billion for the year to end of March, an increase of 56% on the previous year. The firm’s assets under management reached $775 billion during the period, up 37% on a year earlier. The big boost came from the commodities and global markets businesses.

  • REA Group shares fell after the realestate.com.au operator predicted national listings would be down in the 4th quarter on the same time last year. But the company maintained that the Australian property market is very healthy with solid fundamentals.

  • Westpac reported cash earnings of $3.1 billion in their half-year result, a 71% increase on the same time last year. However, cash earnings declined over the year which the company attributed to competitive pressures on net interest margins.

  • CBA announced a $2.3 billion in net profit after tax, with income down 1% on continued margin pressure. The bank also reported a steady operating performance and volume growth compared to the previous corresponding period, with household and business deposits up $8.5 and $2.2 billion respectively. Home lending was up $6.9 billion with business lending up $3 billion.

  • Magellan Financial Group shares fell after announcing it had sold its 11.6% stake in Mexican fast food restaurant chain Guzman y Gomez to Barrenjoey Capital for $140 million, a 36% premium to its entry price 16 months ago. Magellan expects to book a pre-tax profit on the sale of $34 million. Magellan also announced a new CEO, hiring David George from the Future Fund. He will start in August.

  • Pendal Group shares were up after the investment manager hiked its interim dividend by 24% as last year’s acquisition of a US-based investment manager has proved successful.

  • The oil price fell sharply early in the week on recession fears before rising on supply concerns to finish the week flat.

  • The Australian dollar fell this week as commodity prices took a breather whilst the US dollar rallied again.

Economics:

  • The RBA has materially upgraded their forecast for underlying inflation putting the core figure at 4.6% at end of 2022, with underlying inflation then moderating over 2023 but remaining above the RBA’s 2-3% target band. The RBA also expects wages growth to continue increasing and reach 3.7% by mid-2024.

  • The Australian trade surplus rose to $9.3 billion in March, above market estimates. Exports were flat due to a 21% fall in non-monetary gold. Other export data showed rural goods fell, meat rose, and non-rural rose. Imports fell by 4.6% after a 13.4% lift in February, with falls in consumption, capital, and intermediate goods. Net exports will likely detract from economic growth.

  • Building approvals decreased by 18.5% in March, following a large bounce in February. Approvals are now down by 35.6% over the year. The drop in monthly approvals was driven by a drop in multi-unit dwellings with private houses also falling but to a lesser extent. QLD and WA were the only states to record increases.

  • Australian retail trade volumes increased by 1.2% in the quarter and are now 10.7% above pre-covid levels. Increased prices are contributing to the strong growth, which is also being buffeted by strength in the household sector.

  • Australian consumer sentiment fell sharply, down by 5.6% in May. In contrast, business conditions improved in April, but confidence did ease, with both remaining above their long-term averages. The divergence between consumer sentiment and business confidence is very wide.

  • The US annual inflation rate slow to 8.3% in April, but still came in above market expectations of 8.1%. Energy prices continued to rise, but came in below March’s increase, whilst food prices jumped the most since April 1981. Prices for shelter and new vehicles also rose slightly. Interestingly, consumer prices rose, coming in slightly above expectations, but well below March’s 16-year high.

  • The latest US jobs report showed that the US economy added 428,000 jobs in April and that the unemployment rate remained unchanged at 3.6%. New jobs came in above expectations whilst the unemployment rate came in slightly above expectations.

  • In contrast, private US businesses hired 247,000 workers in April, the least since April 2020, and well below forecasts of 395,000.

  • China’s export growth slowed to the weakest levels in almost 2 years whilst imports barely changed in April, as tighter and wider virus curbs halted factory production and crimped domestic demand. The weak figures show China’s trade sector, which accounts for more than 30% of economic growth, is losing momentum as Covid-zero policies hit home.

  • Chinese inflationary pressures eased last month pointing to a moderation in core inflation.

Politics:

  • Leaders of the Group of Seven most industrialised countries pledged to ban the import of Russian oil in response to President Putin’s war in Ukraine. The US and UK have already announced bans on Russian oil imports and Germany has backed a proposal for the EU to get rid of it by January. However, the Italian PM said European companies will be able to pay for Russian gas in Rubles without breaching sanctions, dismissing EU guidance to the contrary.

  • The US House approved a more than US$40 billion emergency Ukraine spending bill with broad bipartisan support. The legislation is significantly larger than the package sought by President Biden and includes funding for weapons, economic, and humanitarian aid.

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CB Wealth Australian Pty Ltd T/As HH Wealth is a Corporate Authorised Representative (No. 1283595) of Axies Pty Ltd ABN 38 136 704 446 AFSL No 339 384. Chris Holme is an Authorised Representative (No. 1004793) of Axies Pty Ltd ABN 38 136 704 446 AFSL No 339384.

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