Pre-Open Data
Key Data for the Week
- Monday – EUR – Private Loans
- Tuesday – AUS – Retail Sales
- Tuesday – AUS – ANZ Business Confidence
- Tuesday – US – Housing Price Index
- Wednesday – UK – Nationwide Housing Prices
- Wednesday – EUR – Consumer Confidence
- Thursday – UK – Gross Domestic Product
- Thursday – EUR – Consumer Price Index
- Thursday – EUR – Unemployment Rate
- Friday – AUS – Building Permits
- Friday – US – Markit Manufacturing PMI
Australian Market
The Australian sharemarket eased 0.4% on Friday in a mixed session of trade. Over the week, the local ASX 200 extended its losses for a third consecutive week to close down 0.8%.
The Property sector was the worst performer on Friday, down 2.2%, as investors focused on the potential collapse of Chinese property giant Evergrande. Stockland gave up 2.6% and Goodman Group lost 2.4%, while Ingenia Communities Group and GPT Group slipped 1.9% and 0.4% respectively.
The Materials sector was also a main laggard; BHP closed down 1.7% and Fortescue Metals fell 1.2%, however, Rio Tinto bucked the trend to gain 0.5%. Gold miners saw sharp losses; Northern Star Resources shed 4.3% and Evolution Mining lost 4.0%, while Newcrest Mining fell 2.5%.
The Financials sector lifted 0.7% as the major banks outperformed, all adding between 0.1% and 1.0%.
The Australian futures market points to a relatively flat open today.
Overseas Markets
European sharemarkets weakened on Friday. Banking stocks were mixed; Deutsche Bank gained 1.6% and Credit Suisse Group added 0.9%, while Barclays Bank slipped 0.1%. By the close of trade, the STOXX Europe 600 lost 0.9%, while the German DAX and UK FTSE 100 slipped 0.7% and 0.4% respectively. Over the week, the STOXX Europe 600 rose 0.3%.
US sharemarkets were mixed. The Financials sector outperformed; JP Morgan Chase lifted 1.2% and Bank of America gained 1.1%, while Citigroup rose 0.4%. Financial services also enjoyed gains, as Visa and MasterCard closed up 1.4% and 1.2% respectively. Information Technology stocks were mixed; Facebook gained 2.0% and Alphabet added 0.6%, while Spotify fell 2.0% and Microsoft slipped 0.1%. Global sports brand Nike slumped 6.3% after the company reported a weaker than expected sales forecast.
By the close of trade, the S&P 500 and Dow Jones closed up 0.2% and 0.1% respectively, while the NASDAQ finished the session flat. Over the week, the Dow Jones gained 0.6% and the S&P 500 added 0.5%, while the NASDAQ rose by less than 0.1%.
CNIS Perspective
Norges Bank announced last week a 0.25% rise in the official interest rate, making Norway the first advanced economy to tighten monetary policy since the start of the pandemic. Norway, home to the world’s largest sovereign wealth fund with US$1.4 trillion in assets, is coming from a record low base of a zero-interest rate policy, citing the increase is due to economic activity being above its pre-pandemic level. For most other developed economies, the action of utilising interest rate rises is some way off, with the next step for central banks from the US, Europe, UK and Australia amongst others, first slowing down quantitative easing.
As central banks consider that inflation may not be as transitory as first thought, pressure begins to build around the withdrawal of the stimulus known as quantitative easing. Quantitative easing is when a central bank purchases longer-term securities from the open market in order to increase the money supply in the economy to encourage lending and investment. Buying these securities adds new money to the economy, and also serves to lower interest rates by bidding up fixed-income securities, also expanding the central bank's balance sheet.
The US Federal Reserve for example, purchases US$120 billion per month of longer dated US treasuries to support the economy, which now has a balance sheet of ~US$8.5 trillion of these assets, more than 4 times their balance sheet post the GFC. The first step to removing super cheap money is slowing quantitative easing, which is expected to be announced in November and scaled back to US$100 billion per month early next year. Ironically this will see government bond prices fall, increasing interest rates and debt servicing costs.
This will be a delicate balancing act, as memories are still fresh of the late 2018 ~20% crash of the S&P 500 when the US Federal Reserve last tried to tighten monetary policy.
Should you wish to discuss this or any other investment related matter, please contact your Investment Services Team on (02) 4928 8500.
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The material contained in this publication is the nature of the general comment only, and neither purports, nor is intended to be advice on any particular matter. Persons should not act nor rely upon any information contained in or implied by this publication without seeking appropriate professional advice which relates specifically to his/her particular circumstances. Cutcher & Neale Investment Services Pty Limited expressly disclaim all and any liability to any person, whether a client of Cutcher & Neale Investment Services Pty Limited or not, who acts or fails to act as a consequence of reliance upon the whole or any part of this publication.
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