Publication Date: May 22, 2023
In the world of finance, optimism prevailed as US equity markets experienced a surge, driven by hopes for a resolution to raise the US debt ceiling before the impending X-date. Investors were buoyed by President Biden’s dedication to achieving an agreement, demonstrated by his curtailed trip to Asia and downsized negotiating team, indicating advanced talks.
Meanwhile, the Japanese TOPIX reached its highest level in 33 years, supported by ultra-easy monetary policy, a favorable Japanese yen exchange rate, and Warren Buffett’s expressed confidence in the Japanese market. However, China faced setbacks with disappointing economic indicators, including weak imports, inflation, lending, industrial production, retail sales, and fixed asset investment. The yuan also weakened against the US dollar, erasing post-recovery gains and raising concerns about China’s recovery.
In the US market, several noteworthy developments occurred during the week. Tesla’s stock gained momentum after CEO Elon Musk announced that the company would begin advertising its cars, a departure from their traditional approach of no advertising. Mega tech names like Nvidia and Meta saw significant growth, with both companies’ stocks rising over 100% year-to-date. Additionally, the KBW Regional Banking Index soared as Western Alliance Bancorp reported significant deposit growth, alleviating banking worries.
Australia witnessed mixed economic indicators. The Q1 Wage Price Index data rose by 0.8%, slightly below economic forecasts but easing concerns about wage price spiraling out of control. Looking ahead, the focus remained on the upcoming Retail Sales report for April. The Reserve Bank of Australia’s (RBA) meeting minutes from May indicated a close decision to raise the cash rate by 25 basis points, with potential for further rate hikes depending on economic and inflationary trends.
In New Zealand, the Reserve Bank (RBNZ) was expected to raise the cash rate by 25 basis points to 5.5%, continuing its monetary policy tightening cycle. Despite a drop in annual inflation rates, the RBNZ aimed to return inflation to its target range of 1-3% and address a tight labor market. However, the rates market anticipated a rate cut later in the year due to a projected decline in economic activity.
Turning to the United States, the Core PCE Price Index, the Federal Reserve’s preferred measure of inflation, was expected to show a modest increase of 0.3% in April. While the rate remained below the 5.4% peak in 2022, reaching the Fed’s 2% target was expected to be a gradual process.
Beyond these regional updates, several market events and key economic indicators were scheduled for the week ahead. These included Judo Bank PMIs in Australia, Retail Sales and RBNZ Interest Rate Decision in New Zealand, S&P Flash PMIs and FOMC meeting minutes in the US, as well as important economic reports from China, the UK, Germany, and Austria.
In corporate news, Newmont successfully finalized its all-paper $US17.8 billion takeover of Newcrest Mining, highlighting continued consolidation in the mining industry. Elders faced a sharp decline in its shares following a 46% slide in interim earnings and reduced dividends. Appen sought $60 million in funding to sustain its operations, and James Hardie reported record sales for the previous fiscal year while warning of a potential slowdown in the current quarter.
Overall, the week in finance witnessed both positive and concerning developments across global markets. As investors awaited crucial economic reports and closely monitored debt ceiling negotiations in the US, market sentiment remained influenced by economic indicators, geopolitical events, and corporate announcements.