The economic week that was
The broader Aussie sharemarket shed 1.5% of puppy fat last week and 7.3% in a September of Scarcity.
Bond yields went up thanks to the handmade crisis of hubris in the UK. Energy and metal prices danced their volatile two-step while iron ore prices fell and Josh Chiat and UBS fear they might be doing more of that soon.
The Australian dollar, unhinged momentarily from the USD which also paused, thank gawd, but still slipped below $US0.64.
Shares are oversold and could still have a near term bounce.
But with the US share market falling below its June low they are at high risk of more downside in the short term as central banks remain hawkish, recession risks are high and rising, the conflict in Ukraine looks likely to escalate with Russia annexing occupied territory, we remain in a seasonally weak period of the year for shares out to mid-October and earnings expectations are still being revised down.
While investor confidence is very negative, we are still yet to see the sort of spike in put/call ratios or Vix that signals major bottoms.
The US share market’s break below its June low potentially opens up another 5-10% leg down with a similar flow through to Australian shares.
Elsewhere, Aussie retail sales were pretty Hot again in August – a robust 0.6% rise thanks to food-ing (+1.1%) and cafés/restaurant-ing at Night probably (+1.3%).
Westpac says this suggests the RBA’s aggressive tightening hasn’t yet significantly hit demand.
Around the world
Oops, global equities did it again last week.
Falling to the sick beat of persistently hawkish central bank speak.
A situation exacerbated by the economic Anarchy in the UK.
US shares fell 2.9% to a new bear market low leaving them down 25% from their January high.
EU markets fell 1%, Japan’s Nikkei lost about 5% and Mainland Chinese markets fell 1.3%.
US shares crashed 9.3% in September and over all global equities contracted 8.5%, confirming last month’s well-earned rep as the time most investors reply to requests with: Wake Me Up When September Ends.
Anarchy in the UK
Financial turmoil in the UK is thanks almost entirely to some mad policymaking by the soon-to-be-historically-brief stint at UK Prime Minister by Liz Truss and her Chancellor of the Ec-wrecker Kwasi Kwarteng.
After deciding to pump UK inflation (it is after all only at 9.9%) and skewer their iconic currency, the preferably dormant Bank of England (BoE) left the crypt to declare it’d start snapping up UK government bonds to restore orderly market conditions.
You know you’ve really screwed up when it’s the sleepy BoE and the possibly institutionally insane International Monetary Fund (IMF) and a whole bunch of other, angrier world economists, who have to come and take time out of their own busy world destructing schedules to save your bacon… or is it baking, in England. I just don’t know.
Of course, buying up heaps of bonds for the next fortnight just to restore orderly market conditions isn’t going to restore anything, certainly not order.
But, on the plus side, since fortress GBP just keeps getting its own a new record low arse vs the greenback handed to it every few mins, the BoE’s ‘intervention’ (my air quotes) inspired a rebound on Wall Street.
Normally the Poms’ ill-timed go at fiscal stimulus would’ve been put down to A Momentary Lapse of Reason.
But it hit global markets at their most vulnerable enhancing a shared sense That This is the End.
The Bank of England’s intervention to calm the gilt market (which was threatening financial problems for UK pension funds) by buying bonds (ie restarting QE) has helped calm things – directly in the UK and indirectly elsewhere by showing that authorities will still intervene in a crisis. This in turn saw bond yields fall back a notch in the US and Europe.
“Unfortunately, the return to QE may just add to inflationary pressures if it has to be sustained for long,” Shane Oliver says.
“Which may necessitate an even higher interest rate hike when the BoE next meets in early November with many talking about a 1.25% hike, which leaves the BoE in the silly position of easing and tightening at the same time.”
Consistent with the threat to growth and risk of recession we are seeing further downgrades to the growth outlook. This was highlighted by the OECD downgrading its 2023 global growth forecast to 2.2% with Germany negative, the UK flat, the Eurozone at 0.3% and the US at 0.5%. Australia was cut to around 2%. Consistent with this, earnings expectations are being revised down.
Stuff you probably didn’t know
Pink Floyd’s Dark Side of the Moon was on the charts for 591 consecutive weeks (11.4 years) in the Billboard top 200.
In 1990, Australia voted Dark Side of the Moon as the best album to have sex to.
The Week Ahead
We’ve a shirt-load of housing data and the RBA’s Big October Board Meet on Tuesday.
Gareth Aird, CBA’s head of Australian economics, has a pretty thorough preview. In it he notes there’s much universal agreement amongst economists et al that the RBA will deliver a rate hike.
And quickly, here’s Belinda Allen’s assumptions for the rest of the week:
Dwelling prices for September should show a fall of ~1.5%, similar to the 1.6% fall recorded in August.
“Falls continue to accelerate in Brisbane but have slowed a touch in Sydney and Melbourne. Sydney prices have now fallen around 10% from the peak earlier this year.”
Lending indicators (out on Tuesday). CBA expects a fall of 2% for August, following a steep 8.5% fall in July.
“The impact of rising interest rates is working to cool demand for housing and subsequently credit, as well as reduce the amount households can borrow.”
Building approvals data is also released at the same time and Allen expects a 5% bounce in August after a sharp fall in July.
On Thursday the trade balance is released – look for a “modest lift in the trade surplus” to $10bn.
The Economic Calendar
Monday October 3 – Friday October 7
Source: Westpac and Investing.com
Australia and New Zealand
MONDAY
The weak in NSW and elsewhere will be taking a holiday. Because: weakness and Labour Day long live the revolution (NSW, SA, ACT).
Daylight saving time started already, BTW so clocks forward 1 hour (NSW, Vic, SA, Tas, ACT).
September MI inflation gauge
TUESDAY
Australia home loans, building permits (Aug)
Australia RBA policy decision
CoreLogic home value index
WEDNESDAY
Australia retail sales (Aug)
RBNZ policy decision
THURSDAY
Australia trade balance (Aug)
FRIDAY
RBA Financial Stability Review
Global
MONDAY
Worldwide manufacturing PMI surveys
Japan Tankan survey (Q3)
ISM US manufacturing survey
TUESDAY
Eurozone PPI (Aug)
US factory orders, JOLTS
WEDNESDAY
Japan Nikkei services PMI
EU S&P Global services PMI
UK Sep S&P Global services
US Aug trade balance
US S&P Global services PMI
US ISM non–manufacturing
THURSDAY
EU retail sales
US Initial jobless claims
FRIDAY
Japan Aug household spending
China foreign reserves September
US September non–farm payrolls
US August wholesale inventories
UA August consumer credit
The ASX IPO calendar for coming few weeks
This list, courtesy of the ASX is, I find, rather speculative. Please do check with the exchange and an adult if keen to follow up.
Listing: 4 October
IPO: $4.5m at $0.20
This company provides Software-as-a-Service (SaaS) based Customer Relationship Management (CRM) and workflow solutions to employment, care and support industries. The software is a single platform that simplifies the unique data, compliance and documentary evidence requirements of major government-funded programs through a unified user interface, BGE says.
Listing: 4 October
IPO: $25m at $1.50
This company is focused on solving gas emission issues for landfill sites while generating dispatchable, distributed and renewable electricity and creating Australian Carbon Credit Units (ACCUs).
LGI has a current portfolio of 26 projects with long-term contracts, across the Australian eastern seaboard and says it has a strong pipeline of growth opportunities, investing capital to optimise the conversion of biogas to revenue.
The plan after listing is to increase biogas revenue through additional ACCU projects and landfill biogas-to-power stations, and expanding existing biogas-to-power stations; increase exposure to high quality landfill gas sites; and strengthen the premium electricity offering deploying hybrid battery systems that increase LGI’s ability to optimise the price it receives for electricity.
Listing: 11 October
IPO: $15m at $0.20
This O&G junior has two exploration permits in the Surat Basin in South East Queensland, ATP 2037 and ATP 2038. The two permits represent an area of over 250,000 acres and are located approximately 50km away from critical gas transmission infrastructure.
The exploration program will explore the Permian Deep Gas play which, if successful, represents a potential multi-TCF gas resource.
Listing: 13 October
IPO: $5m at $0.20
This explorer is focused on the exploration and development of manganese and rare earths projects in the NT and WA.
Projects include the Amadeus Project (prospective for manganese), the Coomarie Project (prospective for heavy rare earths), the Nolans East Project (prospective for light rare earths) and the Pargee Project (prospective for heavy rare earths).