Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Daily Dose of financial insights for investors and traders; Apple skids 5% in three days, Australian inflation slows more than expected, coal stocks surge
Jessica Amir
Market Strategist
Summary: Daily Dose of financial insights for investors and traders; Apple skids 5% in three days what could be next. Australian inflation slows more than expected, what this mean for interest rates and the Aussie dollar. Coal stocks surge to record highs.
The major US indices, the Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) continue to retreat
The major US indices closed on the back foot again as investors continue to weigh the deteriorating Covid developments and increased restrictions in China, while also awaiting Federal Reserve Chair Jerome Powell’s speech later Wednesday. Powell’s will likely underscore the Fed’s desire to keep interest rates at elevated levels until inflation eases. And it’s fair to say that this double blow, of persistent inflation and rising interest rates is denting sentiment. The latest US consumer confidence reading (released Tuesday) for November showed US consumer confidence fell to a four-month low. The biggest drag on US markets on Tuesday, were technology companies with Apple shares continuing to slide. While some travel companies shares saw some stellar gains, with Carnival Cruise (CCL) shares rose almost 5% after announcing Cyber Monday bookings volumes were 50% higher than Cyber Monday 2019. And Norwegian Cruise Line Holdings (NCLH) shares followed higher on the sentiment boost.
Apple (AAPL) shares fell 2.1%, continuing their three day pull back, which totals almost 5%
...on the back of the covid lockdown fallout in China. Apple relies heavily on the key manufacturing hub of Zhengzhou, which is now in lockdown. And as a result Apple’s production shortfall could be close to 6 million iPhone Pro units this year (this is according to people who know about Apple’s assembly operations). These reports are swirling at a time when Apple previously dropped its overall production target to about 87 million units (down from the prior 90 million estimate) on the back of demand slowing. However, Apple and the Foxconn facility are allegedly planning to make up the shortfall in lost output in 2023. However, looking at Apple shares from a technical perspective, its trading 8% lower than its 200 day moving average and the indicators suggest Apple shares could see further downward pressure - as suggested by the weekly and monthly charts.
Australia’s ASX200 (ASXSP200.1) rises 0.3% mid-session, which brings the market closer to its record high, that it's just 4.5% away from
What is supporting the Aussie market rally on Wednesday, is firstly - weaker than expected inflation data was released, which gives the RBA room to remain dovish and only rise rates by 0.25% next week. Secondly, ahead of the northern hemisphere winter, coal shares are trading considerably higher, trading at new record highs, with Whitehaven Coal (WHC) up 7.3% to $9.34 and New Hope Coal (NHC) up almost 6% to $5.88. Trimmed mean CPI (which excludes volatile items), showed consumer prices rose 5.3% year-on-year in October, which means that prices of goods and services in Australia are falling, compared to the prior read (5.4% YoY). This also shows price rises are not as bad as feared (Trimmed CPI was expected to rise 5.7%). Meanwhile, headline inflation also rose less than expected, up 6.9% YoY, which was cooler than prior read (7.3%), and less than the 7.6% expected. Remember, this follows a suite of Australian economic data that supports the RBA remaining more conservative with rate hikes ahead. Earlier in the week, Australian retail trade data unexpectedly fell, showing consumers are feeling the strain of inflation and rising interest rates. So where to from here? We think spending will likely continue to slow into 2023, as the full impact of rate hikes passes through households, with some under financial duress, given debt to income ratios are some of the highest in the world. This means, the RBA could not only potentially stop rising rates sooner than expected, but now the market is thinking the RBA will begin to cut rates in December next year.Australian dollar holds onto monthly gain
Despite the weaker than expected Australian inflation data, that would traditionally cause the Australian dollar (AUDUSD) to fall, today the Aussie is steady at 0.669. However, the AUD is up 5.3% this month. I suspect the reason for this is because it's ahead of LNG and coal shipments likely rising, to cater to the northern hemisphere winter.
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