Pre-Open Data
Key Data for the Week
- Thursday – US – Consumer Price Index
- Thursday – AUS – Consumer Inflation Expectations
- Friday – UK – Gross Domestic Product
- Friday – UK – Industrial Production
Australian Market
The Australian sharemarket advanced again on Wednesday, up 1.1%, after better than expected earnings reports and some uplift from US sharemarkets on Tuesday night. Commonwealth Bank (5.6%) was a standout performer, after it reported a 26% increase in profit and raised its dividend from $1.50 to $1.75 per share. The major bank also announced a buyback program where it plans to repurchase up to $2 billion. The announcement buoyed the other major banks, as Westpac and NAB both advanced 2.4%, while ANZ rose 1.7%. By the close of trade, the Financials sector finished 2.6% higher.
Another positive earnings report came from Megaport (2.7%), a leading data networker, after it announced a 42% increase in revenue and a 47% surge in profit. Furthermore, Computershare (11.2%) reported higher half-year profits and increased its dividend. These stocks, coupled with Xero (3.5%), Zip Co (5.1%) and WiseTech Global (4.8%), propelled the Information Technology sector 4.2% higher.
Meanwhile, the Materials sector was the weakest performer, after it gave up 0.6%, dragged down by Mineral Resources (-8.9%). The miner suffered from rising costs, specifically at its Mt Marion lithium mine, which caused profits to plummet. Other major miners also weakened, as Fortescue Metals Group (-3.6%), BHP (-1.7%) and Rio Tinto (-0.6%), all dipped lower.
The Australian futures market points to a 0.57% rise today.
Overseas Markets
European sharemarkets rose on Wednesday, as technology shares bounced back and automakers steamed ahead. Volkswagen (6.1%) was among the top performers, after news of the possible listing of its luxury brand, Porsche AG. Meanwhile, UK shares were lifted by upbeat earnings and guidance from pharmaceutical company GSK (0.6%) and homebuilder Barratt (2.6%). Another key mover was Vestas Wind Systems, ahead 4.7%. By the close of trade, the STOXX Europe 600 (1.7%), German DAX (1.6%) and UK FTSE 100 (1.0%) all climbed higher.
US sharemarkets climbed higher on Wednesday, as the bond sell-off eased, which provided some respite for markets given recent interest rate fears. Regardless, the US Consumer Price Index data, due to be released on Thursday, will be much anticipated. Investor sentiment also improved as Russia-Ukraine tensions eased. All sectors closed in the green, with the Information Technology (2.3%) sector among the top performers. Key movers included Microsoft (2.2%), Alphabet (1.6%), Netflix (2.3%) and Meta Platforms (5.4%). By the close of trade, the S&P 500 (1.5%), NASDAQ (2.1%) and Dow Jones (0.9%) all advanced.
CNIS Perspective
Quantitative Easing (QE) was a monetary policy tool implemented with gusto during the pandemic that saw central banks buying longer term government bonds to push down bond yields and provide liquidity to financial markets in a time of extreme uncertainty. This expansionary policy, utilised in combination with central banks’ ability to lower interest rates, has played an important role in stabilising economies. This has also been a boon for stock prices with several countries main bourses hitting record highs.
QE has served its purpose well and financial markets no longer require such emergency measures. The Reserve Bank of Australia (RBA) at last week’s policy meeting announced their QE program will be ending today, and would consider whether they would reinvest the proceeds of future bond maturities, the opposite of QE. This is known as a form of Quantitative Tightening (QT) and is also being considered by the US Federal Reserve. The more contractionary step in QT would be to begin liquidating the central bank’s balance sheets, selling bonds. There is no discussion of this happening anytime soon.
Since March 2020, the RBA balance sheet has ballooned from $28.4bn to ~$445bn, which includes ~$350bn of bond purchases. The central bank owns 42% of Australian Government bonds on issue. As the RBA lets these bonds mature, and utilises these funds to pay down their balance sheet in an orderly fashion, there is a likelihood this will allow the central bank to act less aggressively on interest rates and provide a lower rate hiking 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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