Weekly Blog

Stay up to date with our latest blog on political, economic and market news:

Equity markets rise on Fed speak

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

Local and global equity markets trended higher this week with investors reading into US central bank minutes that a rate hike slowdown or pause may be on the cards come the September quarter.

In local stock news, Crown Resorts shareholders overwhelmingly approved its takeover by US private equity group Blackstone for $13.10 a share.

Incitec Pivot shares fell after the company announced plans to spin its fertiliser business into a new company, Incitec Pivot Fertilisers, and will rename itself Dyno Nobel, after its mining explosive subsidiary. Not sure how this benefits shareholders.

Tabcorp traded this week as two separate companies for the first time, with the lotteries business spun out and trading as The Lottery Corporation, whilst the wagering assets remain with Tabcorp.

BHP shares fell during the week as its share went ex-dividend from the demerger of its oil business to Woodside.

Fisher & Paykel Healthcare shares fell after the respiratory products company declined to give any guidance for fiscal 2023, given the uncertainty regarding covid in the period ahead and the possibility its hospital customers might face more personnel shortages.

The Aussie dollar rose against the US dollar on rising expectations of the US central bank fading their rate hike program later this year.

The oil price took another leg up this week as US petrol demand is likely to be high over Memorial Day long weekend whilst US officials talked up banning US oil exports.

Economic

Total Australian construction work done fell by 0.9% in Q1 with building construction the major drag. Engineering construction also contracted. Both private and public sector work fell.

Australian private sector capital expenditure volumes fell by 0.3% in the 1st quarter, with both mining and non-mining investment falling by the same amount. The outlook for business investment remains strong, but headwinds of capacity constraints and rising costs will hurt.

A key US central bank official said they expect the bank to raise interest rates to 2% by August. That would imply another two 0.50% rate hikes over the coming months, which the market has already priced in. Uncertainty remains as to where rates head after that, with some members citing a pause or slowdown in rate hikes may be necessary come September.

The US central bank minutes from their May meeting showed broad agreement from members regarding moving rates higher and faster towards a more ‘neutral’ stance, that the US economy was very strong with a tight labour market, but that risks remain with the Ukraine conflict, China’s covid-zero stance, and restoring price stability given very high inflation.

US existing home sales in April fell 2.4% from March levels, boosting inventory of unsold existing homes to 1.03 million homes. First home buyers were the largest component of sales at 28%.

The US economy contracted at an annualised 1.5% in the first three months of 2022, slightly worse than initial estimates of a 1.4% decline, with the biggest drag coming from trade.

Most market predictions now have a 30-40% of the US entering recession sometime in the next 2 years. The US central bank will need to convince investors it can tighten monetary policy and reel in inflation without tipping the economy into a recession. Not an easy task.

A US manufacturing indicator fell in May from the previous month, coming in at the lowest level in 4 months and below market expectations. The reading remains at expansionary levels, but the pace of expansion was weight down by hikes in selling prices and concerns over higher rates. The rate of growth in new sales was the slowest since August 2020.

The European central bank president said that the bank was likely to lift the Euro area deposit rate out of negative territory by the end of September and could raise it further. Recession fears will need to be overcome.

UK consumer confidence fell to its lowest level in at least 48 years after surge in cost of living. Falling consumer confidence would usually result in more fiscal stimulus, but it can’t when you’ve got inflation surging and central bank needing/wanting to raise rates.

Chinese banks cut a key interest rate for long-term loans by a record amount. The cut is a significant move to boost loan demand. The lower rate will be applied to new mortgages immediately whilst existing mortgages won’t be repriced until next year at the earliest.

China will offer more than US$21 billion in additional tax relief mainly aimed at businesses as it seeks to offset the severe impact of covid-zero policies on the economy.

Politics

Labor’s Anthony Albanese is the 31st prime minister of Australia after the weekend’s federal election results with Labor yet but likely to form government, breaking the Coalition’s almost decade long run. Interestingly, both major parties received some of the lowest primary vote totals seen in some time. Four seats are still yet to be called.

The Chinese Premier gave his starkest warning yet about the economy as it comes under severe strain from covid outbreaks and lockdowns. He said the situation is worse than in 2020 and urged more efforts to reduce a soaring unemployment rate.

The US energy secretary said the Biden administration hasn’t ruled out a ban on oil exports to tame domestic fuel prices.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

Disclaimer

All statements made on this website are made in good faith and we believe they are accurate and reliable. Macarthur Wealth Management does not give any warranty as to the accuracy, reliability or completeness of information that is contained in this website, except in so far as any liability under statute cannot be excluded. Macarthur Wealth Management, its directors, employees and their representatives do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided on this website is owned by Macarthur Wealth Management. You may not alter or modify this information in any way, including the removal of this copyright notice.

Macarthur Wealth Management Links

Blog https://www.macarthurwealth.com.au/insights/

Facebook https://www.facebook.com/macarthurwealthmanagement

Youtube https://www.youtube.com/channel/UCHde08SRVuDPchprbz0CE_g

Twitter https://twitter.com/MacarthurWealth

Pinterest https://www.pinterest.com.au/MacarthurWealth/

Linkedin https://www.linkedin.com/company/macarthur-wealth-management

Instagram https://www.instagram.com/macarthur_wealth/

Retirement: https://www.macarthurwealth.com.au/account-based-pension/

US Fed hawkishness sees US dollar falter

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

A mixed week in equity markets with global developed markets lower, the Australian market flat, whilst Asian and emerging markets saw investor support as the US dollar weakened.

In local stock news, Viva Energy shares rose to all-time high after the Shell petrol station operator announced that it was enjoying unprecedented profit margins from its Geelong refinery, which allows the company to import crude oil rather than rely on overseas refineries.

Brambles shares surged to an 8-month high after the pallet’s giant confirmed it had received an unsolicited tentative takeover offer from global private equity firm CVC Capital Partners. CVC later confirmed that would not be pursuing a takeover. Aussie companies with lazy boards/management getting picked off by cashed-up foreign raiders. More to come.

James Hardie shares fell after the building products company announced sales of US$3.6 billion in the 12 months to end of March, up 24% from a year ago but slightly below market expectations. The company reaffirmed it’s 2023 financial year guidance.

Andrew Forrest will take the reins of the company he founded almost 20 years ago after an extensive global search for a new leader failed to yield a better alternative, as current CEO Elizabeth Gaines exits the role in August.

Woodside Petroleum shareholders overwhelmingly approved the company’s $41 billion merger with BHP at Woodside’s annual general meeting in Perth. Shareholders also backed a name change to Woodside Energy.

Australian wages grew by 0.7% during the March quarter according to the Australian Bureau of Statistics. The lift was slightly below market expectations but did move the annual rate up to 2.4%. Private sector wages came in above public sector wage growth in the quarter. Interestingly, wages growth is not yet broad based and real wages growth (net of inflation) are deeply negative.

The Australian economy added 4,000 jobs in April, coming in well below market consensus, with a sharp decline in part-time employment. By state, there were small gains in NSW and VIC, whilst there were falls elsewhere. The unemployment rate was unchanged at 3.9% given the downwardly revised March number.

The ANZ bank has made a major revision to its house price forecasts for 2022 with a fall of 3% now expected on average across the 8 capital cities. Contrast that with their previous prediction of an 8% rise in 2022. The Australian housing market is always very sensitive to rate movements given the predominance of variable rate loans.

The US central bank chair reaffirmed that the bank is likely to raise interest rates by 0.5% at each of its next 2 meetings in June and July in an attempt to bring inflation under control. He said the bank was prepared to hike until there was clear and convincing evidence that inflation was starting to roll over. Those signs may be nigh.

US data showed signs of economic resilience, with US shoppers increasing retail spending in April for the 4th consecutive month, whilst US home prices reached a high in April. In contrast, new applications for unemployment benefits rose for the 3rd week in a row whilst the number of home sales fell.

According to the Institute of International Finance, the world economy will essentially flatline this year as Europe heads towards recession, China slows, and US financial conditions tighten.

Annual inflation in the UK jumped to 9% in April, the highest level since 1982, prompted by rising prices for electricity, gas and other fuels, and second-hand cars, in another sign consumers’ living standards continue to squeeze. The April reading compares with March’s 7% reading.

China’s economic activity is collapsing in the face of tough covid-zero rules with industrial output and consumer spending sliding to the worst levels since the pandemic began. Expect a big bazooka of stimulus over the coming weeks and months, which is likely to coincide with an easing of covid restrictions in some of their major cities.

Some European Union nations are wanting to delay a push to ban Russian oil so they can proceed with the rest of a proposed sanctions package if the bloc can’t persuade Hungary to back the embargo. Germany has said they will stop importing Russian oil by the end of the year regardless of the bloc’s moves. Russia’s oil revenues are up 50% this year even with various trade restrictions. Whilst there is general agreement that Putin needs to be punished, likely energy rationing and soaring energy bills don’t sound like a good idea for some European countries.

NATO members have rallied around Finland and Sweden after they announced plans to join the alliance, marking another dramatic change in Europe’s security structure.

China’s top economic official gave an unusual public show of support for digital platform companies, suggesting Beijing may be ready to let up on a long campaign against the tech giants. A good move, but also shows Beijing getting desperate on the economic growth front.

The US is preparing a military aid package for India to deepen security ties and reduce the country’s dependence on Russian weapons, according to people familiar with the matter. If true, it would make India one of the largest recipients of such aid behind Israel and Egypt.

General Advice Warning

Disclaimer

Macarthur Wealth Management Links

Blog https://www.macarthurwealth.com.au/insights/

Facebook https://www.facebook.com/macarthurwealthmanagement

Youtube https://www.youtube.com/channel/UCHde08SRVuDPchprbz0CE_g

Twitter https://twitter.com/MacarthurWealth

Pinterest https://www.pinterest.com.au/MacarthurWealth/

Linkedin https://www.linkedin.com/company/macarthur-wealth-management

Instagram https://www.instagram.com/macarthur_wealth/

Retirement: https://www.macarthurwealth.com.au/account-based-pension/

Commodity prices fall on Chinese growth concerns

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

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.

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 slowed 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.

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.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Macarthur Wealth Management Links

Blog https://www.macarthurwealth.com.au/insights/

Facebook https://www.facebook.com/macarthurwealthmanagement

Youtube https://www.youtube.com/channel/UCHde08SRVuDPchprbz0CE_g

Twitter https://twitter.com/MacarthurWealth

Pinterest https://www.pinterest.com.au/MacarthurWealth/

Linkedin https://www.linkedin.com/company/macarthur-wealth-management

Instagram https://www.instagram.com/macarthur_wealth/

Retirement: https://www.macarthurwealth.com.au/account-based-pension/

Aussie dollar falls on surging USD

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

Local and global stocks largely finished flat for the week as markets recovered from falls earlier in the week.

In local stock news, Coles Group announced March quarter sales up 3.9% to $9.3 billion, even as flooding in NSW and QLD forced the temporary closure of 130 stores.

Mirvac shares rose after the builder said it had navigated challenges from Covid and wet weather to sell 2,332 residential lots during the March quarter, up from 2,282 in the same period a year ago.

The oil price surged again this week as Russian supply concerns rose, particularly for Europe, whilst Chinese announcements of further stimulus also provided support.

The Aussie dollar fell to a low of US70c during the week as the US dollar surged and concerns regarding Chinese economic growth put downward pressure on spot commodity prices.

Australian headline inflation rose by a huge 2.1% in the March quarter taking the annual rate to 5.1% according to data from the ABS. Significant contributors to the quarterly print included new dwellings, fuel, and tertiary education. The RBA’s preferred core or underlying measure rose 1.4% in the quarter with the annual rate rising to 3.7%, above the RBA’s target 2-3% band.

The US economy contracted at an annualised pace of 1.4% in the March quarter, well below forecasts for a 1.1% expansion, and following 6.9% growth in the December quarter of 2021. Exports dropped 5.9% while imports surged 17.7%. Private domestic investment slowed sharply whilst government spending continued to decline. On the positive side, consumer spending increased as did fixed investment (particularly non-residential).

The US central bank chair reiterated a bias for aggressive rate hikes with markets now betting on 0.5% increases in May, June, and possibly July.

The US is building more homes than it has in 16 years as supply tries to keep pace with very strong demand. Housing starts rose to an annual rate of 1.79 million in March.

French President Macron won a 2^nd term in the weekend’s election over rival Marine Le Pen with 57% of the vote. The win was by a smaller margin than the 2017 elections with Le Pen gaining ground and breaking through the 40% threshold which is rather unprecedented for French nationalist parties.

The Russian foreign minister has warned that there’s serious danger of nuclear conflict just one week after he said Moscow was committed to avoiding the use of nuclear weapons. It’s either a threat to bring about an end to the current conflict swiftly or it’s a threat to ensure no other external involvement from other countries.

Russia has cut off gas to Poland and Bulgaria after both countries refused to meet Russia’s request to pay for their supplies in Rubles. European gas prices surged by as much as 20%. Not good for broader Europe, and especially for Poland and Bulgaria given their significant reliance on Russian gas. Both countries stuck in a hard place as Western sanctions won’t let them pay for the gas in Rubles.

Chinese President Xi continues to come under pressure to relax his Covid-zero policies which are bringing the economy to its knees. Xi said China would step up infrastructure construction in their latest pledge to bolster the economy.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Macarthur Wealth Management Links

Blog https://www.macarthurwealth.com.au/insights/

Facebook https://www.facebook.com/macarthurwealthmanagement

Youtube https://www.youtube.com/channel/UCHde08SRVuDPchprbz0CE_g

Twitter https://twitter.com/MacarthurWealth

Pinterest https://www.pinterest.com.au/MacarthurWealth/

Linkedin https://www.linkedin.com/company/macarthur-wealth-management

Instagram https://www.instagram.com/macarthur_wealth/

Retirement: https://www.macarthurwealth.com.au/account-based-pension/

Mixed signals for equity investors

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

Equity markets were mixed this week with US companies reporting strong results whilst the US central bank readied the market for a large rate rise next month.

So far, about 80% of the largest 500 US companies that have posted earnings results for the March quarter have beaten analyst expectations.

In local stock news, Bank of Queensland’s share price fell as the company reported a decrease in its net interest margin amid ongoing competitive pressures and higher fixed rate lending volumes.

Telecoms firm Uniti Group has agreed to a $3.62 billion takeover offer from a consortium of Canada’s Brookfield Asset Management and fund manager Morrison & Co.

Shares in Ramsay Health Care rose more than 20% after it revealed a $20 billion, $88 per share, bid by a consortium led by private equity giant KKR. The offer represents a premium of more than 36% from Ramsay’s close the day before the announcement. Super fund Hesta are part of the consortium.

Rio Tinto’s quarterly iron ore exports dropped 8% compared with the same period last year. BHP shares fell after the miner said its operations were hampered by labour shortages (covid policy related) along with bouts of bad weather. Production at its flagship Pilbara ore operations slipped in the March quarter.

AGL Energy revealed its Loy Yang coal-fired power station had suffered an electrical fault, wiping 25% of its generation capacity potentially until August.

Australia’s unemployment rate remained at 4% but contrasting surveys/data paint a slightly different picture. Roy Morgan findings show that 2.3 million Australians (16.2% of the workforce) remain either unemployed or under-employed. However, ABS estimates show that number is closer 1.5 million people.

Annual growth in new Australian housing lending continued to slow in March. Renovation activity remained very strong, with lending at record high levels. There was a solid lift in consumer lending due to holiday financing.

The US central bank chairman signalled that they were likely to raise interest rates by 0.50% at its meeting next month.

The World Bank hasn’t ruled out further downgrades to their global economic growth outlook. The institution previously lowered its estimate for global growth in 2022 to 3.2% from 4.1% in January.

The IMF has also slashed its global growth forecast to 3.6% in 2022, down from a forecast of 4.4% in January.

The European central bank retained their interest rate at emergency settings but judged that incoming data since its last meeting has reinforced the expectation that money printing under its asset purchase program should be concluded in the 3^rd quarter.

China announced that authorities would cut banks’ reserve requirements soon to support the lockdown battered economy. This would allow (or encourage) the banks to lend more freely.

A snap poll showed Australian opposition leader Anthony Albanese had the edge in the first debate of a tightly fought election campaign against PM Scott Morrison. This pushed betting odds, historical a pretty good indicator, back in favour of the Labor leader following a period of odds significantly shortening for the current PM.

Some of Germany’s industrial giants have warned that imposing an embargo on Russian gas to punish Moscow would cause the national economy irreversible damage. The EU has warned member states that meeting Russia’s demand to pay for Russian gas in Rubles would violate sanctions. In contrast, India is becoming a large buyer of oil from Russia and in some cases selling refined fuel on to Europe. When there’s a will there’s a way.

Chinese President Xi sees no alternative to a Covid-zero approach despite simmering anger in the locked-down financial hub of Shanghai and mounting costs. Xi is seeking a third 5-year term during a congress later this year.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Macarthur Wealth Management Links

Blog https://www.macarthurwealth.com.au/insights/

Facebook https://www.facebook.com/macarthurwealthmanagement

Youtube https://www.youtube.com/channel/UCHde08SRVuDPchprbz0CE_g

Twitter https://twitter.com/MacarthurWealth

Pinterest https://www.pinterest.com.au/MacarthurWealth/

Linkedin https://www.linkedin.com/company/macarthur-wealth-management

Instagram https://www.instagram.com/macarthur_wealth/

Retirement: https://www.macarthurwealth.com.au/account-based-pension/

US releases more oil

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

MARKETS
The local equity market finished higher for the week whilst global markets were mixed
with emerging market equities receiving a boost.

Parts of the US government bond yield curve are inverting, ie. where short term bond
yields are higher than long term bond yields, usually a key indicator of an economic
downturn or recession. Shorter term bond yields are trying to reflect inflationary concerns
whilst longer term bond yields are reflecting that the economy isn’t robust enough for the
central bank to fight inflation with significant rate rises.

In local stock news, the Star Entertainment CEO has resigned following revelations of
failings to prevent criminals exploiting its casinos.

CIMIC has recommended shareholders accept a takeover offer as its largest shareholder
Hochtief has gained 85% of the company through an off-market bid for $22 per share.
Private equity group Blackstone received approval from the Foreign Investment Review
Board to buy casino operator Crown. Blackstone still needs to clear other hurdles in order
to complete their $8.9 billion offer.

Telstra’s current CFO Vicki Brady was named the incoming CEO after current CEO Andy
Penn said he will be retiring in September. Brady says the carrier can be a growth company
again.

Air New Zealand shares resumed trading after revealing a more than $2 billion
recapitalisation plan to save the company. The package includes selling a large amount of
new shares to investors and the government and a loan from the government.

US crude oil supplies dropped again last week putting additional upward pressure on the
oil price thus forcing the US President Biden to release more oil from their strategic
reserves, whilst the OPEC+ oil producing nations stuck to its existing deal raising the
production target by 432,000 barrels per day. The oil price finished the week lower.

ECONOMICS
The Federal Government handed down their budget with little surprises with measures
unlikely to significantly alter the economic trajectory or have any significant investment
market impacts. The key initiative announced was a “cost of living” support package to help
offset the costs of rising fuel prices and broader inflationary pressures.

The Government expects 3.5% economic growth this year before settling back to 2.5%
next year. They expect headline inflation of 4.25% this year before settling back down at 3%
and 2.75% in the years to follow. Unemployment is forecast at 3.75% and is expected to
remain low.

Australian retail trade rose by 1.8% in February and is now 9.1% stronger over the year.
Strong spending on cafes, restaurants & takeaway, clothing & footwear, as well as
department stores drove the result. NSW and SA saw the strongest growth in the month.
Australian job vacancies rose by 6.9% over the 3 months to February to be 200,000 higher
than pre-pandemic levels. Job vacancies now total 423,500, a record high, in contrast to the
563,300 people unemployed.

Building approvals rebounded by a strong 43.5% in February after a virus wave impacted
the January figure. The rebound was broad across both houses and apartments with gains
made across most of the country.

Total private sector credit rose by 0.6% in February, the same pace as January but lower
than the gains in November and December. Housing credit growth slowed, whilst personal
and business credit growth jumped compared to January.

US consumer confidence for March was below economist expectations according to a key
survey. The reading has been slipping in recent months as consumers have become more
pessimistic on the economic outlook.

The US Labor Department reported 11.3 million job openings in February, down slightly
from January and December’s record. Other data showed that the private sector added
450,000 jobs in March, slightly ahead of economist forecasts.

The Japanese central bank is conducting additional government bond buying to put
downward pressure on yields as 10-year bond yields rose to their highest level since
January 2016.

POLITICS
Shanghai has locked down half of the city in turns in order to prevent their most recent
virus outbreak from getting out of control. Residents barred from leaving their homes,
public transport suspended, and private cars will not be allowed on roads unless necessary.
This will have a large impact on already weak economic growth.

China’s regulatory crackdowns last year reduce the private sector’s share of the country’s
big businesses for the first time in 7 years. The government’s tough regulations fuelled a
market selloff that erased some US$1.5 trillion from Chinese stocks at the peak.

The Biden administration has commenced their plan to release roughly 1 million barrels of
oil a day from US strategic reserves for up to 6 months to combat rising petrol prices and
supply shortages. The plan will assist but releasing strategic reserves should always be
considered a very last resort. The plan will see almost one-third of their reserves drawn
down.

Germany, which relies on Russia for more than 50% of its natural gas, has triggered the
first stage of an emergency plan to brace for a potential cut-off. The third stage would
mean gas rationing.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Macarthur Wealth Management Links

Blog https://www.macarthurwealth.com.au/insights/

Facebook https://www.facebook.com/macarthurwealthmanagement

Youtube https://www.youtube.com/channel/UCHde08SRVuDPchprbz0CE_g

Twitter https://twitter.com/MacarthurWealth

Pinterest https://www.pinterest.com.au/MacarthurWealth/

Linkedin https://www.linkedin.com/company/macarthur-wealth-management

Instagram https://www.instagram.com/macarthur_wealth/

Retirement: https://www.macarthurwealth.com.au/account-based-pension/

Aussie dollar pushes higher on risk-on sentiment

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

Local and global equity markets rose this week as equity investors ignored the threat of higher interest rates and instead focused on US central bank comments regarding the strength of the economy.
In local stock news, casino operator Star has been embroiled in scandal after revelations that the business disguised $900 million in transactions as hotel expenses to help guests dodge controls over using the money for gambling, putting their casino licence at risk.
Ramsay Health Care has received an offer from its Asian joint venture partner to buy the remainder of the shares, offering $1.82 billion.
Respiratory care provider Fisher & Paykel forecast full year revenue to be less than the previous one. The company said the omicron variant was requiring less respiratory intervention and a mild flu season had unfolded in the northern hemisphere.
National Australia Bank will follow its $2.5 billion on-market buyback with another of the same value as the bank seeks to improve its capital ratio and reduce shares.
JB Hi-Fi reported that 3rd quarter sales were well ahead of the same period last year, with sales up 11% in their JB Hi-Fi Australian division and up 5% in The Good Guys business.
The oil price rose again this week as US stockpiles dropped sharply last week and supply shortages continue given sanctions on Russia.
The Aussie dollar rose past the US75c mark this week, supported by high commodity prices and a positive change investor risk appetite which generally supports the Aussie. Less support for the Euro and the Yen is also resulting in additional support for the Aussie dollar.

CBA data is showing that growth in new lending for housing continues to ease, primarily driven by lending to owner occupiers. Higher fixed rates have seen a declining share of new fixed rates lending and shorter fixed rate terms. Consumer lending growth picked up, but business lending growth has slowed.
Data showed Australian manufacturing conditions strengthening in March, marking the 22nd successive month of improvement. New orders growth accelerated with employment levels and purchasing activity continuing to rise. However, input costs and output prices rose at faster rates due to shortages and rising costs.
The US central bank chair said the bank must move quickly to bring too high inflation under control and if needed will use bigger than usual interest rate hikes to do so. Talk and action are two different things but talking can bring about less action if they are successful at talking down demand.
A key US economic leading index rose by 0.3% in February, in line with expectations, but the print does not reflect the full impact of the Russia/Ukraine conflict which escalated thereafter.
US existing home sales fell 7.2% in February while February sales fell 2.4% from a year earlier. Higher mortgage rates hitting home, with the average 30-year fixed mortgage recently topping 4% for the first time since 2019.
The Bank of England hiked rates for a 3rd successive meeting with officials sounding less confident on the path for rates ahead. The Bank of Japan doubled down on its commitment to keep stimulating the economy even if inflation continues to accelerate.

The lack of progress in talks to amend the Brexit agreement on Northern Ireland has frustrated the UK which now appears to be stepping up preparations to suspend parts of the deal it struck with the European Union.
European Union leaders may hold off on endorsing intervention in the bloc’s wholesale energy market as member states are divided on the most effective emergency options to curb soaring power and gas prices. All options are on the table, but most aren’t easy or immediate solutions.
The Biden administration and European Union are close to a deal aimed at slashing Europe’s dependence on Russian energy sources, as the US and its allies seek to further isolate and punish Moscow. The deal would ensure supplies of American natural gas and hydrogen for Europe.
Australia, the world’s biggest export of alumina, announced a ban on shipments to Russia in a move that will add further pressure on Russia with Australia accounting for nearly 20% of Russia’s supply of alumina, a key ingredient for producing aluminium.
On the trade front, the Biden administration plans to reinstate exemptions from the Trump-era tariffs on 352 Chinese products that were previously granted waivers, most of which expired by the end of 2020. Elsewhere, the US and UK reached a deal to ease tariffs on British steel and aluminium, resolving a longstanding dispute.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Macarthur Wealth Management Links

Blog https://www.macarthurwealth.com.au/insights/

Facebook https://www.facebook.com/macarthurwealthmanagement

Youtube https://www.youtube.com/channel/UCHde08SRVuDPchprbz0CE_g

Twitter https://twitter.com/MacarthurWealth

Pinterest https://www.pinterest.com.au/MacarthurWealth/

Linkedin https://www.linkedin.com/company/macarthur-wealth-management

Instagram https://www.instagram.com/macarthur_wealth/

Retirement: https://www.macarthurwealth.com.au/account-based-pension/

Investor confusion reigns

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

MARKETS

Local and global equity markets were mixed this week with investors pummelled by an influx of extremely fluid news flow including conflict, inflation, central banks and rates, and floods.

In local stock news, CSL announced it would waive its original 80% acceptance rate condition and declare its $16 billion takeover of Vifor Pharma a success, after gaining more than 74% in the takeover target. Swiss government approval is still required.

Insurers have been informing the market of their claims from the floods and storms that battered parts of the NSW and Queensland since late February. IAG has revised its total claims expense estimate for the event to $74 million, down from $95 million, due to work on earlier claims.

Oil prices had an extremely volatile week, soaring to $130 a barrel amid supply shortage fears as the US and allies looked to cut off Russian oil and gas. The oil price then fell sharply on peace hopes, before rising again with the UAE stating it will call on its fellow OPEC+ members to boost oil output faster. But the oil price finished the week lower as the UAE call was tempered hours later by their energy minister and high US inflation data set off fears of economic contraction.

ECONOMIC

New Australian labour market data showed demand for workers spiked after the most recent virus wave receded, with the ANZ job advertisement series jumping 8.4% in February to be 31.5% higher than a year earlier.

Australian consumer sentiment fell again in March, with the reading below 100, indicating that pessimists outweigh optimists. Rising inflationary pressures are weighing on sentiment, along with recent floods, Russia/Ukraine conflict, and the prospect of higher mortgage rates.

The February NAB business survey showed a strengthening in business conditions and confidence as new virus cases declined from their early January peaks.

Reserve Bank governor Philip Lowe said surging oil prices would produce annual inflation of 4% in Australia this year, above the Bank’s 2-3% target.

The US central bank chairman has confirmed plans to back a 0.25% rate increase at the March meeting, with the Russia/Ukraine conflict impacting how hard they can go on rate rises in contrast to unrelenting inflationary pressures. The chairman did indicate that he was prepared to raise rates by more than 0.25% in a meeting or meetings if inflation doesn’t subside later this year as expected.

US jobs rose by 678,000 in February, coming in well above expectations. The unemployment rate fell from 4% to 3.8%, the lowest in 2 years. Average hourly earnings were flat in the month with the annual rate falling from 5.5% to 5.1%.

US inflation reached a new 4-decade high in February, with the consumer price index up 7.9% from a year earlier. Markets concerned that sustained inflation and lower economic growth could see a period of stagflation.

The European central bank kept their interest rates unchanged but surprisingly sped up their reduced asset purchasing schedule for the coming months, stating that the program could end in the 3rd quarter if the medium-term inflation outlook will not weaken.

China announced an economic growth goal of about 5.5% for 2022, it’s lowest target since 1990, but still at the higher end of many economists’ estimates. The higher than expected number, if achieved, could provide a boost to the global economy.

POLITICS

Sanctions and corporate boycotts on Russia have continued this week as part of a broader retreat by global corporate giants. In response, Russia has threatened to cut natural gas supplies to Europe. The US secretary of state said the US and its allies were looking at a coordinated embargo on Russian oil and gas, whilst ensuring appropriate global supply. Problem is where to get the additional supply from…. Venezuela or Iran….

China will continue its crackdown on monopolies to ensure fair competition according to their Premier. He also singled out integrated circuits and A.I. industries as priority areas for the government to build up domestic capabilities. President Xi said China could not rely on international markets for food security and should focus on domestic production and farmland protection.

The US House passed a long-delayed US $1.5 trillion spending bill that would fund the government through the rest of the fiscal year, with emergency coronavirus funding stricken from the bill. The bill also approved US$13.6 billion in emergency spending for the US response to the war in Ukraine.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Macarthur Wealth Management Links

Blog https://www.macarthurwealth.com.au/insights/

Facebook https://www.facebook.com/macarthurwealthmanagement

Youtube https://www.youtube.com/channel/UCHde08SRVuDPchprbz0CE_g

Twitter https://twitter.com/MacarthurWealth

Pinterest https://www.pinterest.com.au/MacarthurWealth/

Linkedin https://www.linkedin.com/company/macarthur-wealth-management

Instagram https://www.instagram.com/macarthur_wealth/

Retirement: https://www.macarthurwealth.com.au/account-based-pension/

Oil price surges as Ukraine conflict continues

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

MARKETS

Local and global equity markets were mixed this week with investor sentiment stuck between valuation support (positive), inflation (negative), and the ongoing conflict in Ukraine (negative).

In local stock news, Australian insurers declared an insurance catastrophe as the number of claims for flood assistance on the east coast soared, with Suncorp already flagging $75 million of additional costs.

Oil prices surged due to the ongoing Russia/Ukraine conflict whilst reports US crude stockpiles fell more than expected didn’t help, putting more pressure on countries to release oil from their emergency stockpiles.

Both the Aussie dollar and the US dollar rose this week as currency investors sought out safety away from Europe whilst the US central bank chair also suggested a first rate hike was imminent.

ECONOMIC

The Reserve Bank of Australia left the cash rate unchanged as expected at their March meeting with their statement emphasising patience before their first rate hike and a focus on prevailing inflation data over the next two quarters along with labour market conditions, particularly wages. Australian economic growth bounced by 3.4% in the 4th quarter to be up by 4.2% on a year ago levels, with household consumption surging and inventories adding to growth. Dwelling investment, business investment, public demand, and net exports were all modest drags on growth. The household savings rate fell, but the level of savings remains significantly higher than pre-pandemic levels. A range of business indicators showed support for Australia’s economic growth outlook with inventories up in Q4, company profits rose 2.7% after adjusting for inventories, wages and salaries up 1.9%, retail trade up 1.8% in January, and private sector credit growth up 0.6% in January. Australian dwelling prices rose by 0.3% across the 8 capital cities in February with annual growth now sitting at 19.2%. Prices were mixed across the country, with Sydney and Melbourne flat whilst gains were recorded in Brisbane, Adelaide, and Perth. New lending for Australian housing rose by 2.6% in January, driven by a strong increase in lending to investors which was up a very strong 6.1%. Lending to first home buyers continued to fall. Personal lending also rose by a small 0.2% after falling by 3.6% in December. The Australian trade surplus widened in January driven by a sharp lift in exports, which rose 7.6%. Iron ore and coal exports provided the boost up by 15% and 16.7% respectively. Rural goods exports also remained strong. Goods imports fell by 2.5%, but still sit materially higher over the year. Australian building approvals fell sharply in January with a 27.9% record drop, coming in well below the modest fall expected by the market. It was a weak set of numbers across the board. US central bank officials appear to be sticking to their resolve to raise interest rates at this month’s meeting despite the uncertainty posed by the Russia/Ukraine conflict. Tough situation as speculation has continued to increase regarding a delay to their first rate rise. Fed chairman Powell, appearing before a government committee, said he would propose a 0.25% increase at their next meeting. French inflation accelerated more than expected, whilst the prices of basic goods in the UK are rising at the fastest pace in more than a decade, adding further pressure on the European central bank who would prefer to withdraw stimulus at a very slow and measured pace. The Chinese central bank moved to further support liquidity by injecting US$45.8 million into the financial system, the most since September 2020. China’s Politburo, of less relevance post Xi’s ascension to almost dictatorship, has vowed to strengthen macroeconomic policies to stabilise the economy this year, suggesting more support could be offered. China’s official manufacturing and non-manufacturing data for February outperformed expectations, alleviating fears of a China slowdown.

POLITICAL

Western nations proceeded with sanctions against Russia to limit their ability to do business by freezing bank assets and cutting off state owned enterprises, whilst also agreeing to disconnect some Russian banks from the SWIFT international banking system and limiting the ability of Russia’s central bank to support their currency. Putin responded by ordering Russia’s nuclear-deterrence forces to be put on alert. Interestingly, Russia’s oil and gas reserves have yet to be targeted and there’s still significant exemptions to many of the sanction lists. Also interesting has been Russia’s invasion/occupation strategy. Russia has barred airlines from 36 countries from its airspace and banned its residents from transferring currency abroad, whilst Turkey has closed the Dardanelles and Bosphorus to warships, only allowing ships to return to their bases. US President Biden has approved the release of an additional US$350 million worth of weapons from US stocks to Ukraine, which is their 3rd release in 6 months, amounting to more than US$1 billion in security assistance. Other nations have followed suit. US President Biden pledged action on inflation in his State of the Union speech but didn’t offer any realistic ways of reducing inflation which recently hit a 40-year high. He told businesses not to cut wages but to cut other costs….

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Macarthur Wealth Management Links

Blog https://www.macarthurwealth.com.au/insights/

Facebook https://www.facebook.com/macarthurwealthmanagement

Youtube https://www.youtube.com/channel/UCHde08SRVuDPchprbz0CE_g

Twitter https://twitter.com/MacarthurWealth

Pinterest https://www.pinterest.com.au/MacarthurWealth/

Linkedin https://www.linkedin.com/company/macarthur-wealth-management

Instagram https://www.instagram.com/macarthur_wealth/

Retirement: https://www.macarthurwealth.com.au/account-based-pension/

RUSSIA INVADES, SANCTIONS TO FOLLOW

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

MARKETS

Local and global equity markets weakened this week as escalating European tensions saw Russian troops enter Ukraine.

In local stock news, Magellan reported a net profit after tax of $251.6 million for the 1st half, an increase of 24% on the prior period, whilst the company declared an interim dividend of $1.10 per share, up from 97c. The fund manager is considering an on-market share buy-back.

AGL Energy has rejected a surprise $3.54 billion takeover approach from billionaire Mike Cannon-Brookes (Atlassian) and Canada’s Brookfield Asset Management in favour of a plan to split in two this year. A tech guy running an energy company……what could go wrong……

QBE Insurance reported a net profit of US$750 million for calendar 2021, compared with a US$1.5 billion loss in the previous year. Investors were unconvinced by the result.

Super Retail Group had first-half profit fall 35% and warned higher freight and transport costs will continue to affect margins, with lockdowns and higher costs contributing to the weaker result.

Telstra and TPG will share their regional networks in what they claim will provide better service to people outside of major cities. The two companies revealed a 10 year network deal which will improve coverage without the need for costly network rollouts.

Coles reported a better than expected performance for the 1st half of its financial year but rising costs from covid wiped gains from improved sales. Woolworths reported lower 1st half profit due to virus-related costs with the company warning that it’s inevitable food prices will rise.

Seven Group improved 1st half earnings and is banking on its large stake in Boral to deliver better full year numbers. The company posted a 21% increase in net profit, which doesn’t include the 69% stake acquired in Boral.

Rio Tinto reported an improved full year profit of US$21.09 billion and announced a special dividend of US62 cents per share, which will be paid in addition to the final dividend of US$4.17 per share.

Scentre Group returned to full year profit benefiting from an uptick in property valuations. Net profit after tax was $887.9 million, with revaluation gains of $81 million. Investors will receive a higher distribution.

Oil prices surged above US$100 a barrel for the first time since 2014 following Russia’s invasion of the Ukraine before settling back down to trading levels earlier in the week on news that the US is considering a potential release from its strategic oil reserves in coordination with allies.

The Australian dollar fell this week as is normally the case when global risks rise, investors seeking out safety in the Japanese Yen, Swiss Franc, and US dollar.

ECONOMIC

CBA lending data for January showed that growth in new lending for housing eased, primarily driven by owner-occupiers, whilst higher fixed borrowing rates saw a decline in the share of fixed rate lending. Consumer lending growth softened whilst business lending growth remains solid.

A key Australian consumer confidence index fell 1.4% despite the easing of virus restrictions and re-opening of international borders, with concerns regarding inflation hitting home for consumers. The drop in confidence means household spending might be weaker in the period ahead.

Australian construction data showed that building work done fell by 1.7% in the 4th quarter because of a 3.7% fall in private sector residential work. Work completed on renovations also eased in the quarter but remains at a high level. Engineering work completed lifted driven by stronger public sector activity.

Australian wages rose by 0.7% in the 4th quarter, with the annual rate stepping up to 2.3%. Both private and public sector wages grew at the same pace in the quarter. Including bonuses, the annual rate lifted to 2.8%, but remains below headline inflation numbers. The labour market has tightened again over the last few months.

The volume of capital expenditure in Australia rose by 1.1% in the 4th quarter, with mining investment increasing by 2.6% and non-mining investment increasing by 0.5%.

A private US data firm said its manufacturing data rose to a 2-month high in February, suggesting the US economy regained momentum.

Prices charged for goods and services in the Euro area jumped by a record amount in February as an easing of pandemic restrictions led to a strong rebound in economic activity.

China’s central bank has kept its benchmark lending rates unchanged in February, in line with market expectations, after cutting rates a month earlier.

Hong Kong will boost support for consumers and the unemployed by allocating more than US$6 billion as a covid outbreak dents the economy. The government has banned travel from several countries, closed schools, and imposed a range of other restrictions.

POLTICS

Russia invaded Ukraine after 2 regions close to the Ukraine/Russia border declared themselves autonomous or independent, thus seeking support from Russia whist on Ukrainian land. Not a smart move from the Russians as sanctions could become crippling, but equally damaging for the West in terms of embarrassment and the sanctions that will now follow which will add further pressure to current high oil and gas prices and broader inflation. Sanctions could also force the US to reluctantly enter into a nuclear deal with Iran to ease oil supply concerns. China said it opposes the sanctions and called US actions “immoral”.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Macarthur Wealth Management Links

Blog https://www.macarthurwealth.com.au/insights/

Facebook https://www.facebook.com/macarthurwealthmanagement

Youtube https://www.youtube.com/channel/UCHde08SRVuDPchprbz0CE_g

Twitter https://twitter.com/MacarthurWealth

Pinterest https://www.pinterest.com.au/MacarthurWealth/

Linkedin https://www.linkedin.com/company/macarthur-wealth-management

Instagram https://www.instagram.com/macarthur_wealth/

Retirement: https://www.macarthurwealth.com.au/account-based-pension/