Pre-Open Data
Key Data for the Week
- Wednesday – AUS – CoreLogic Dwelling Prices declined 0.1% in May, the first national drop since September 2020.
- Wednesday – EUR – Unemployment Rate remained steady at 6.8% in April.
- Wednesday – AUS – Gross Domestic Product grew by 0.8% in the March quarter, or 3.3% over the year, roughly in line with expectations.
Australian Market
The Australian sharemarket edged 0.3% higher on the first day of June, as seven out of eleven sectors finished in positive territory. The Utilities sector was the most notable detractor, broadly down 5.3%, which represented its largest daily decline since the pandemic induced sell-off in March 2020. The sector was dragged lower by electricity retailer Origin Energy, which dove 13.7%, after it scrapped its 2023 earnings guidance. The company’s CEO Frank Calabria expressed his concern for the industry due to a shortage of coal generation capacity, which has caused wholesale prices to surge, and referenced the situation to being similar to the crisis in 2021 that crippled the UK’s Energy sector.
Lithium miners were also key detractors on Wednesday, as recent broker reports and media speculation indicated that the price of battery metals may have peaked. Allkem, Liontown Resources and Pilbara Minerals sank 15.4%, 19.1% and 22.0% respectively. Despite this, the Materials sector only inched 0.3% lower, reinforced by gains experienced by BHP (2.3%) and Fortescue Metals Group (3.2%).
On the other hand, the Telecommunications Services (1.9%) and Financials (1.2%) sectors outperformed the market. Major telecoms Telstra and TPG were amongst the top performers in yesterday’s session, both up ~3.0%. Meanwhile, Commonwealth Bank (2.3%) led the big four banks higher, with Westpac, NAB and ANZ all up ~1.0%.
The Australian futures market point to a 0.77% decline today, driven by weaker overseas markets.
Overseas Markets
European sharemarkets eased on Wednesday, after economic data indicated a reduction in productivity. German retail sales fell 5.4% in April, worse than expected, while the Eurozone Purchasing Managers Index for manufacturing declined to its lowest level since November 2020. By the close of trade, the STOXX Europe 600 and UK FTSE 100 both lost 1.0%, while the German DAX edged down 0.3%.
US sharemarkets were also broadly lower on Wednesday, as ten out of eleven sectors retreated, led by the Financials (-1.7%) sector. Notable movers included Citigroup (-1.9%), JPMorgan Chase & Co (-1.8%) and Bank of America (-1.4%). Meanwhile, the Information Technology sector outpaced the market, however, still lost 0.3%. A notable gainer included Salesforce, which surged 9.9%, after it raised it’s full-year profit outlook. On the other hand, the Energy sector was the session’s key performer, up 1.8%, supported by higher global oil prices. By the close of trade, the Dow Jones, S&P 500 and NASDAQ all closed down between 0.5%-0.8%.
CNIS Perspective
The increase in the Official Cash Rate in May is just another headwind the private construction industry is experiencing, but with building approvals already down 36.8% since March 2021, it could be a significant one at that.
Building demand has been fuelled by low interest rates and government support, but that is softening as government stimulus ends and interest rates rise.
Builders are already facing significant supply headwinds, with labour and material shortages being major impediments, which is extending the time to construct a typical home.
Builders margins are being squeezed as a result and has already led to the collapse of a number of high profile developers. The pull back in private sector house approvals has been broad based across the country, following the peak in early 2021.
With the borders reopening we may see population growth fuel some demand, along with growing wage demand and strength of the labour market, but it appears the demand for building approvals will continue to falter as interest rates rise.
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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