The Economic Week that Was


The Wednesday to Friday meltdown in confidence last week hewed about 260 pts, or some -3.45% off the ASX200. It was like watching your Dad chop the tip off his finger cutting wood. Bloody. Foolish. Scary. Funny.

It’s real fortunate that the benchmark Aussie index only fell -2.1% or -150pts for the full week. And still, that’s the kind of heroic decline we’ve not seen since September 2022.

And to think we were ahead by ahead by about 1.7% or about 110pts by Tuesday.

Times got tough. In part a weak global lead, in part the ongoing RBA hawkishness and in part the lack of Chinese growth, Australian sectors which dissolved under pressure this week include IT, resources, energy, consumer discretionary and industrials.

Crude prices came under pressure late this week after the China National Petroleum Corp (CNPC), China’s largest oil and gas producer, cut its 2023 China crude demand estimate.

The CNPC now forecasts 2023 China crude oil demand to grow by +3.5% to 740 MMT, down from a March estimate of +5.1% to 756 MMT.

On the bloodletting Friday session, the Energy Sector (-4%) was but an albatross around the neck of the ASX. Losers include Woodside (ASX:WDS) -4.6%, Santos (ASX:STO) -4.3% and Beach Energy (ASX:BPT) -3.3%.

Real Estate lost -2.75%, so that was eagle of sorts, while another three sectors fell by more than 1%, making them seagulls or something equally annoying.

Cochlear (ASX:COH) fell -3.5% on Friday, after the UK competition regulator raised concerns over their proposed acquisition of Oticon.

Melbourne – in a laughable display of ignorance – has apparently pipped Sydney in the World’s Most Liveable City Rankings (behind Vienna and Copenhagen). Seriously. Have none of these people been to Sydenham?

Global share markets fell over the last week with renewed concerns about central bank rate hikes triggering global recession and a slump in profits.


Bond yields were flat to up. Oil, metal and iron ore prices fell as did the $A with the $US up slightly.

The Economic Week Ahead

The message from central banks over the last week was painfully clear:
1. Fed Chair Powell reiterated the message from the previous week’s Fed meeting that while it makes sense to moderate the pace of rate hikes, further rate hikes are likely.
2. The Bank of England raised its key policy rate by a bigger than expected 0.5% to 5%, citing concerns about more persistent inflation pressures and strong wages growth and warning of more hikes to come. The UK money market now expects the BoE to hike above 6%.
3. Both the Norwegian and Swiss central banks hiked rates again with both remaining hawkish and the Norwegian central bank citing concerns about wages growth.

Let’s go to Dr Shane Oliver on the RBA:

While the minutes from the last RBA board meeting were oddly a bit less hawkish – noting that the decision to hike was “finely balanced” and omitting the guidance that further rate hikes “may be required” – the overall impression is that the RBA remains pretty hawkish driven by upside risks to inflation, worries about wages growth being tied to inflation and rising home prices resulting in less of a drag on consumer spending. What’s more a speech by Deputy Governor Bullock suggested that the RBA wants to see unemployment around 4.5% as being closer to a “sustainable balance” and consistent with some estimates of where the so-called Non-Accelerating Inflation Rate of Unemployment is – this is well above the current unemployment rate of 3.6%.

And of course, Governor Lowe’s speech which came after the last meeting included the guidance towards further tightening.
The risk of recession in Australia is now very high.

Our assessment remains that the RBA has already done enough to slow the economy and bring inflation back to target and we are seeing clear evidence of slowing demand in terms of falling real retail sales, falling building approvals, slowing plans for growth in business investment, slowing GDP growth and early indications of a slowing jobs market. As such we think the RBA should leave rates on hold for several months and allow more time to assess the impact of past rate hikes.


3 things Josh is watching this week

Australia Monthly Inflation

It’s a huge week next week, with key inflation data coming that could lend vital insight into the RBA’s next move, says Josh Gilbert of eToro:

“Last month, Australian monthly inflation accelerated to 6.8%, driven by increases across rents and fuel. Phillip Lowe has made it clear that the RBA will do what is necessary to bring inflation under control, which has put the ASX200 under pressure so far this year due to markets pricing in further hikes from the central bank.”

“The cash rate is currently at 4.1% but the consensus is that the RBA will keep its foot on the gas and raise rates to 4.6% over the next few months.

“The key factor preventing that rate from coming to fruition would be a sharp decline in inflation. Recent RBA minutes point towards ‘upside’ risks to inflation, and there are fears over services inflation, with rising electricity costs and soaring rents set to keep feeding inflation. The good news is that inflation is expected to decline to 6.2% for May, but a number below 6% would likely be needed to divert the RBA from raising rates at the start of July.”

AU Retail Sales

Alongside inflation data next week, the RBA gets another key piece of data with retail sales.

Josh says last month’s data showed that the RBA’s extensive tightening cycle is having its desired effect on consumers, with sales flat for April.

“This is a situation where bad news is good news for the RBA. Retail sales were flat, but this means that consumption is slowing, a key ingredient in the fight against inflation. Retailers are now feeling the full pain of the RBA’s hiking cycle, with consumers tightening their belts. As the end of the financial year draws to a close in Australia, discounts are starting as retailers look to offload inventory.

“The idea of driving volume through markdowns can be useful but unfortunately, it means profit margins erode as a result. We’re already seeing that take shape, with many retailers downgrading their profit guidance with the full extent of the difficulties likely to be evident during reporting season. The expectation is for retail sales to gain marginally for May to 0.1%, but the next six months may see this number decline further as rates continue to rise and the lag of previous hikes takes full effect.”

Can Bitcoin reach a new 52-week high?

It was a big week for Bitcoin, with the news that Blackrock filed an application for a Bitcoin ETF.

“Bitcoin jumped by about USD $30,000 for the first time in months but the key level to watch now is a move above USD $30,000. The asset hasn’t traded above this level for a year. A move above USD $31,000 would signal a new 52-week high and spur investor optimism, with volumes already rising significantly. The bottom line here is that this is a tip of the hat from Wall Street to crypto, signalling institutions are clearly keen on this asset, even if it felt crypto had left the conversation for a few months.”

“When it comes to ETF issuance, Blackrock knows a thing or two, with 575 accepted applications and one denial. A potential ETF approval, alongside clearer regulation and a Bitcoin halving next year, are crucial catalysts for a solid second half of 2023 for Bitcoin. However, there are still risks, from regulatory crackdowns to the potential for higher-for-longer interest rates that may spoil the party.”


The Economic Calendar
Monday June 26 – Friday June 30

All sources from Commsec, Trading Economics, S&P Global Research


Australia RBA Meeting Minutes
RBA Deputy Governor Bullock speaks



PMIs (May)

Australia Judo Bank Flash PMI, Manufacturing & Services

Everyone else

US Market Holiday
Hong Kong Unemployment Rate (May)
Canada PPI (May)

China (Mainland) Loan Prime Rate (Jun)
Malaysia Trade (May)
Japan Industrial Production (Apr, final)
Japan Capacity Utilization (Apr)
Germany PPI (May)
Eurozone Current Account (Apr)
Taiwan Export Orders (May)
Hong Kong SAR Inflation (May)
United States Building Permits (May, prelim)
United States Housing Starts (May)

South Korea PPI (May)
Japan BOJ Meeting Minutes (Apr)
United Kingdom Inflation (May)
Canada Retail Sales (Apr)

China (Mainland), Hong Kong SAR, Taiwan Market Holiday
New Zealand Trade (May)
Philippines BSP Interest Rate Decision
Indonesia Loan Growth (May)
Indonesia BI Interest Rate Decision
Norway Norges Bank Interest Rate Decision
Switzerland SNB Interest Rate Decision
United Kingdom Bank of England Interest Rate Decision
Eurozone Consumer Confidence (Jun)
United States Current Account (Q1)
United States Initial Jobless Claims
United States Fed Powell Testimony
United States Existing Home Sales (May)

China (Mainland), Taiwan Market Holiday
Japan au Jibun Bank Flash Manufacturing PMI
Germany HBOB Flash PMI, Manufacturing & Services
France HCOB Flash PMI, Manufacturing & Services
Eurozone HCOB Flash PMI, Manufacturing & Services
UK S&P Global/CIPS Flash PMI, Manufacturing & Services
US S&P Global Flash PMI, Manufacturing & Services*
Japan Inflation (May)
Thailand Trade (May)
Malaysia Inflation (May)
Singapore Inflation (May)
United Kingdom Retail Sales (May)