Pre-Open Data
Key Data for the Week
- Wednesday – EUR – Retail Sales rose by 0.2% in May, less than the expected 0.4%.
- Wednesday – UK – FOMC Meeting Minutes confirmed the central bank’s hawkishness, as most members supported a 0.75% rate hike in July, in line with market expectations.
- Thursday – AUS – Trade Balance
- Thursday – US – Trade Balance
Australian Market
The Australian sharemarket lost 0.5% on Wednesday, as gains in the REITs (3.1%) and Information Technology (3.1%) sectors were offset by heavy losses in the Energy (-5.8%) and Materials (-5.0%) sectors.
Interest rate sensitive Technology stocks benefitted from lower bond yields, which supports growth stock valuations, as market participants shifted their focus from inflation risk to recession risk. Additionally, analysts commented that bond yields had become overstated and have retraced in the last few weeks. The 10-year Australian Treasury yield has softened from ~4.2% to ~3.5%. This seemingly provided tailwinds in yesterday’s session for tech heavyweights Xero (6.6%), Block Inc (4.5%) and WiseTech Global (3.7%), alongside a surge in the share price of Megaport (14.0%) and Zip Co (12.8%).
On the other hand, commodity prices continued to soften in response to economic growth fears. Furthermore, news that China’s COVID-19 situation had worsened, with a new outbreak in Shanghai yesterday, added to worries about commodity demand. This was felt by the cyclical Energy and Materials sectors, which were the session’s major detractors. Notable movers included Woodside Energy (-6.9%) and Santos (-6.2%), alongside BHP (-5.6%) and Rio Tinto (-7.4%).
The Australian futures market points to a 0.54% increase today.
Overseas Markets
European sharemarkets rallied on Wednesday, after news Norwegian oil and gas workers ended their strike, which had threatened energy supply. Gains were led by the Consumer Staples (2.4%) and Information Technology (3.1%) sectors. Key performers included L’Oreal (4.9%), Unilever (1.6%) and Infineon Technologies (4.5%). Meanwhile, softer oil prices led producers lower, as BP gave up 1.5% and Shell conceded 2.2%. By the close of trade, the STOXX Europe 600 added 1.7%, the German DAX rose 1.6% and the UK FTSE 100 improved 1.2%.
US sharemarkets advanced on Wednesday, as eight out of eleven industry sectors closed in the green, led by the Utilities (1.0%) and Information Technology (0.9%) sectors. Unsurprisingly, the Energy sector was the key laggard, down 1.7%, dragged lower by weaker oil prices. Tech heavyweights supported the positive performance, after Microsoft, Alphabet, Apple and Meta Platforms all added between 0.9%-1.3%. By the close of trade, the S&P 500 and NASDAQ both added 0.4%, while the Dow Jones eked out a 0.2% gain.
CNIS Perspective
The relative direction of interest rates is a key driver of foreign currency markets, as it’s a fundamental factor driving the demand for a currency.
Currently in the UK, there are a growing number of other factors driving investor sentiment away from the Pound and therefore sending it lower, to experience its worst quarter since 2008’s GFC days. The Pound has now fallen 12% against the US Dollar over the past six months.
The UK central bank hasn’t been as aggressive with raising interest rates, concerns over the final Brexit agreement, pandemic fears post lockdown, significant energy concerns amidst the Russia Ukraine war and general inflation concerns are all converging in the UK.
Throw into the mix Government instability with two senior ministers resigning and slower economic growth and you find an undesirable investment destination and therefore weaker currency.
Compared to the UK, the USA is considered a safe haven.
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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