Pre-Open Data
Key Data for the Week
- Wednesday – EUR – Consumer Price Index rose 0.3% in January, taking annual inflation to 5.1%, a new record high.
- Thursday – AUS – Trade Balance
- Thursday – UK – BoE Bank Rate Decision
- Thursday – EUR – Retail Sales
Australian Market
The Australian sharemarket closed 1.2% higher on Wednesday, led by strong gains from the Materials (2.0%) and Energy (2.8%) sectors. All mining heavyweights advanced, as Fortescue Metals Group (3.7%), BHP (1.6%) and Rio Tinto (2.3%) recovered from yesterday’s dip. Meanwhile, gains were widespread in the Energy sector, with Worley (5.0%), Woodside Petroleum (3.3%) and Santos (2.9%) being the most notable movers.
Most local sharemarket sectors advanced, except the Utilities and Information Technology sectors, which closed relatively flat. Bloc Inc (-5.6%), Zip Co (-2.7%) and Origin Energy (-2.6%) were key detractors in their respective sectors. Meanwhile, Computershare (4.6%), one of Australia’s largest sharemarket registry service providers, buoyed the Technology sector after UBS upgraded it to a buy rating.
The Financials sector performed well, up 1.1%, after all major banks improved. Gains were led by ANZ (1.4%), while Commonwealth Bank, Westpac and NAB all advanced between 0.8-1.0%. Macquarie Group steamed on, ahead 2.0%, while fund manager Australian Ethical Investment surged 6.2% as investors digest news of its first ever ETF product. The ETF will be one of just a small handful of actively managed ethical funds available on the local sharemarket, which is expected to boost the company’s funds under management moving forward by providing greater access and liquidity to investors.
Other notable movers in Wednesday’s session included Auckland International Airport (5.4%) and lithium producer Allkem (4.7%).
The Australian futures market points to a relatively flat open today.
Overseas Markets
European sharemarkets improved on Wednesday, led again by miners alongside consumer staples stocks. Glencore (0.9%) benefited from an uptick in the price of copper, while Tesco, the third largest retailer in the world, closed 0.7% higher. Meanwhile, the banking sub-index rose 0.9% in anticipation of a UK interest rate increase, which is expected from the Bank of England’s meeting on Thursday. Barclays and Lloyds Banking Group both advanced between 0.9-1.0%. By the close of trade, the STOXX Europe 600 and UK FTSE 100 both rose between 0.5-0.6%, while the German DAX closed relatively flat.
US sharemarkets climbed for the fourth consecutive session, as all but the Consumer Discretionary sector closed in the green. Most notably, Alphabet surged 7.3%, after it beat earnings in its after trade report on Tuesday. This, coupled with Apple’s recent positive earnings report, has provided a recent boost to the Technology sector, which rallied 0.8%. Other notable gainers included Microsoft (1.5%) and NVIDIA (2.5%). In contrast, PayPal (-24.6%) plunged as investors became concerned after the company disclosed a fall in revenue, following the loss of its major customer, eBay. By the close of trade, the S&P 500 (0.9%), NASDAQ (0.5%) and Dow Jones (0.6%) all advanced.
CNIS Perspective
A more detailed look into the RBA’s policy announcement on Tuesday reiterates the significance that wages growth has on inflation. While the RBA acknowledges inflation had picked up, “it is too early to conclude that it is sustainably within the target band”.
However, it is the outlook for wages growth that remains a key variable of interest for the RBA, as it expects that wages growth will need to increase to sustain inflation within the target band. On wages, the RBA noted that “it is likely to be some time yet before aggregate wages growth is at a rate consistent with inflation being sustainably at target”.
With the unemployment forecast to push under full employment, it is only a matter of time before wage pressures mount, inflation rises and a rate hike is sealed.
The once famous and respected Phillips Curve (that states inflation and unemployment have an inverse relationship), has been under threat over recent years, because unemployment kept falling but inflation wasn’t rising. However, this could be about to change if inflation does in fact rise at the same time as unemployment falls.
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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