Pre-Open Data
Key Data for the Week
- Thursday – US – Consumer Price Index rose 0.6% in January, or 7.5% annually, the biggest year on year gain since 1982.
- Thursday – AUS – Consumer Inflation Expectations for February are 4.6%, higher than the forecasted 4.5% and prior 4.4%.
- Friday – UK – Gross Domestic Product
- Friday – UK – Industrial Production
Australian Market
The Australian sharemarket recorded a third straight gain on Thursday after it ended the session 0.3% higher, led by a strong performance from overseas markets on Wednesday night. Similar to international markets, there was a rally in growth stocks, following a decline in bond yields. The Information Technology (2.6%) sector held the local sharemarket up, with stellar performances from Block Inc (9.7%) and Megaport (7.6%).
The Materials sector inched 0.5% higher, despite a 2.1% slip in the price of iron ore. Most of the major miners performed well, as Fortescue Metals Group climbed 4.0% and Rio Tinto lifted 2.1%, while BHP closed relatively flat. Mineral Resources (3.6%) recovered from yesterday’s earnings report, while lithium miner Allkem steamed ahead 4.3%.
Numerous companies reported on Thursday, which had a mixed impact on market performance. NAB finished 4.5% higher, after it posted a 12% lift in cash earnings and greater lending volumes, albeit with a slight decline in its Net Interest Margin due to competition. AMP also climbed 4.5%, despite reporting a statutory loss of $252 million, due to impairment charges, transformation and other remediation costs. However, investors looked beyond this loss to the company’s underlying full-year net profit, which jumped 53% to $356 million. On the other hand, ASX (-3.8%) fell, despite beating earnings and profit guidance, perhaps due to the news that its CEO and Managing Director, Dominic Stevens, will be retiring.
The Australian futures market points to a 0.77% decline today.
Overseas Markets
European sharemarkets were mixed overnight as the UK FTSE 100 rose 0.4%, while the German DAX closed flat and the STOXX Europe 600 edged 0.2% lower. Broadly positive earnings helped investors look past US inflation data, particularly boosted by AstraZeneca’s (3.4%) upbeat sales forecast and its raised annual dividend. The market was also buoyed by soaring base metal prices, which supported London listed Rio Tinto (2.7%) and Glencore (0.4%). Major consumer staples retailer, Tesco, also performed well, up 1.1%.
US sharemarkets declined on Thursday, as investors digested news of higher than expected inflation, what it means for interest rates, and, in turn, how this will impact asset prices. Interest rate expectations were reflected in bond yields, as the 10-year Treasury climbed above 2.0%, while the 2-year note lifted to 1.6%. Unsurprisingly, the Information Technology (-2.8%) sector suffered, as it gave up gains from yesterday’s session. Microsoft (-2.8%), NVIDIA (-3.3%), Apple (-2.4%) and Alphabet (-2.0%) all fell. By the close of trade, the S&P 500 (-1.8%), NASDAQ (-2.1%) and Dow Jones (-1.5%) weakened.
CNIS Perspective
As inflation in the US reaches a 40 year high and the notion of global inflation rises, it’s interesting to consider one exception – Japan, where inflation has remained stubbornly low for quite some time. Japan’s headline CPI inflation was 0.8% y/y in December 2021, while core inflation, which excludes fresh food and energy, was -0.7% y/y. Compare this to the US, with inflation up 7% from a year ago.
The Bank of Japan's 2% inflation target has not been achieved since 1992, except when the index reflected the effects of a consumption tax hike in 2014. Given Japanese companies have lacked pricing power for decades, consumers in their 30s and younger have never experienced an increase in selling prices. Japanese companies have long been reticent to raise prices for fear of sparking a consumer backlash. However this may all be about to change.
Popular Japanese snack Umaibo, has been selling for 10 yen for more than four decades, but it is due for a 20% price increase in April, with the company sighting soaring raw material prices and transportation costs for the price increase.
During a news conference on 18 January, Bank of Japan Governor Haruhiko Kuroda stressed that prices are not steadily rising towards 2%. Rather, he said, temporary factors, such as resources becoming more costly, were pushing up prices. His words sound eerily familiar to that of US Fed Chair Jerome Powell, who until late last year described inflation as “temporary”. However, prices in the US kept rising, and inflation was 7% higher in December than 12 months earlier, the biggest rise since 1982.
It will be very interesting to see whether Japan can still remain inflation free during this next economic cycle.
Should you wish to discuss this or any other investment related matter, please contact your Wealth Management Team on (02) 4928 8500.
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