ASX LIVE | ASX 200 to Rise; US Equities Strong Bounce, Oil Weakens on Global Outlook

ASX 200 had a buoyant day trading after monthly CPI data showed some parts of inflation falling, giving investors hope that the RBA would skip interest rate hikes in July.

Both the Discretionary and Real Estate sectors lead the charge with over 2% gains for each.

The best individual performers:

• The Star Entertainment Group [ASX:SGR], up 11.50%
• Dicker Data [ASX:DDR], up 5.67%
• Harvey Norman Group [ASX:HVN], up 4.92%
• Lovisa Holdings [ASX:LOV], up 4.85%
• Ramsay Healthcare [ASX:RHC], up 4.77%

The worst performers:

• Sayona Mining [ASX:SYA], down 2.86%
• BSP Financial Group [ASX:BFL], down 2.22%
• John Lyng Group [ASX:JLG], down 1.88%
• Capricorn Metals [ASX:CMM], down 1.70%
• Seek Ltd [ASX:SEK], down 1.4%

That’s all from me today. Have a great evening!

Here are the latest figures from a consumer survey done by ANZ- Roy Morgan.
Consumer confidence rose 2.5pts but still remains low.

ANZ-Roy Morgan Aus Consumer Confidence rose but is below 80 for the 17th straight week, the longest it has been this low since the 90-91 recession. But ‘Future economic conditions’ confidence was at its highest in 4wks. #ausecon @AdelaideTimbrel @arindam_chky @RoyMorganAus pic.twitter.com/mBn5r4SJqM

— ANZ_Research (@ANZ_Research) June 26, 2023

In a speech at the central banking conference in Portugal this week, Christine Lagarde, European Central Bank head and former IMF chief, blamed corporate profits.

‘Rising corporate profits account for almost half the increase in Europe’s inflation over the past two years as companies increased prices by more than spiking costs of imported energy.’

Mrs Lagarde went on to say, ‘workers were expect[ing] to recover the value of their pre-pandemic wages over the next two years, but if companies passed these rises to consumers through higher prices, inflation would persist for longer than currently expected and remain above the ECB’s 2% target‘.

Inflation in the euro area peaked at 10.6% in October 2022 as import costs surged after Russia invaded Ukraine, and companies passed on more than this direct cost increase to consumers. Inflation has since retreated to 6.1% in May, but core inflation—a more reliable measure of underlying price pressures—has proven more persistent.

Source: IMF

But is the story as easy as blaming corporations for all inflation?

As humans, we often search for easy answers to complicated problems. It’s an evolutionary trick to reduce our cognitive load. However, it can often get us in trouble. So what’s the real story here?

The latest report on Eurozone corporate profits shows that many sectors aren’t simply gouging consumers, expecting to pay higher prices with inflation.

In fact, gross profit margins have remained relatively flat since the pandemic at approximately 40.6%

So what’s all the talk of blaming corporations?

Simply put, prices are more responsive to change than wages. The rigid labour market takes time to reflect the wage expectations of workers who see prices around them rise rapidly.

By the time prices are up in inflationary times, Modern Monetary Theory has kicked in at central banks worldwide, and we hear the usual call for restraint in wage increases.

The tension between the two is something we are seeing play out in Australia right now.

RBA’s comments this month show the problem, with the board warning, ‘without productivity gains, a lift in wage growth towards 4% will cause unit labour costs to spike to even higher rates’.

Deputy RBA chief Michele Bullock then gained the ire of Unions when she exclaimed that the RBA’s goal was to get the unemployment rate up to 4.5% by the end of 2024.

These comments highlight the ivory tower that the RBA governors sit in, but understanding that simply stopping corporations from price gouging and central banks from squeezing isn’t going to get inflation under control.

Here’s an update for those who have read enough today and want a simple video on what the monthly CPI numbers could mean moving forward.

Inflation free-fall confirmed.
Annual inflation 5.6% in year to May, down a whopping 2.8ppts since Dec 2022.
In 1st 5 months of 2023, inflation is 1.2%, 0.24% per month; an annualised rate under 3%.
Target hit.
RBA has made a horrible error with recent hikes.
My Two Minute Take pic.twitter.com/1bq5AoGS6I

— Stephen Koukoulas (@TheKouk) June 28, 2023

Fat Tail Analyst and Money Morning contributor gave us a peak today at what have been his best three performing holds of this year.

The results will surprise you.

The top three were:

• James Hardy [ASX:JHX], up 23% since March
• Bitcoin [BTC], up 85% this year
• Bellevue Gold [ASX:BGL], which Callum rode up 60% this year

For a full understanding as to why these performed so well, or where to find more like that, click the link below.

https://www.moneymorning.com.au/20230628/three-2023-winners-with-potential-for-more.html

Monthly CPI data for May was released this morning, giving us some signs of slowing inflation, although it remains sticky in some places.

The monthly CPI indicator rose 5.6% in the twelve months to May.

The most significant price rises were in Housing (+8.4%), Food and non-alcoholic beverages (+7.9%) and Furnishings, household equipment and services group (+6.0%).

Offsetting the rise was Automotive fuel (-8.0%).

Whether this will give the RBA pause before considering another round of interest rate raising is anyone’s guess at this point.

With Treasury to announce the new Governor of the RBA in July, that could be more significant than persistent inflation.

For the full CPI Report, click here.

The monthly CPI Indicator shows a clear slowing in inflation for new dwelling prices, petrol, holiday travel, furnishing and clothing but rents still on the rise and electricity from July too.
ABS charts pic.twitter.com/pOergVmrGY

— Shane Oliver (@ShaneOliverAMP) June 28, 2023

ASX 200 up 1.08% at 1:00pm

Here’s a look at the best and worst performers around midday.

The best individual performers:

• The Star Entertainment Group [ASX:SGR], up 9.50%
• Ramsay Healthcare [ASX:RHC], up 5.89%
• Dicker Data [ASX:DDR], up 5.16%
• Lovisa Holdings [ASX:LOV], up 4.46%
• Harvey Norman Holdings [ASX:GPT], up 4.31%

The worst performers:

• Seek Ltd [ASX:SEK], down 2.89%
• Capricorn Metals [ASX:CMM], down 2.30%
• Johns Lyng Group [ASX:JLG], down 2.26%
• Regis Resources [ASX:RRL], down 1.87%
• Liontown Resources [ASX:LTR], down 1.56%

The recovery of real estate prices in Australia is expected to extend well into 2024, driven by a swelling population and a lack of housing supply.

Sydney and Melbourne are expected to lead the rebound, with house prices in both cities rising by 6-9% and 2%, by the end of next year.

Adelaide, Perth, and Brisbane are also expected to see house prices recover to set new highs.

The recovery in prices is being driven by strong net overseas migration, which is adding about 300,000 people to Australia each year. The tight rental market is also driving some people into home ownership sooner.

However, there are some headwinds that could restrain property price rises, such as further interest rate hikes and weak wage growth.

The RBA expressed concerns that the recovery in property prices could ‘imply less of a drag on consumption in the year ahead than had previously been envisaged’.

According to CoreLogic’s most recent Pain & Gain Report, the percentage of homes that experienced a nominal increase in value upon resale has decreased for the third quarter in a row. The current percentage stands at 92.3%, down from a peak of 94.2% in the three-month period leading up to May 2022.

When examining hold periods, it’s evident that there has been a rise in the number of resales during the March quarter that were owned for less than two years.

The percentage of resales that resulted in a nominal gain increased to 8.4% from 6.6% in Q1 2022, while the percentage of resales that resulted in a loss with a hold period of less than two years jumped from 3.4% in March 2022 to 12.4% for the same quarter this year.

‘Such short selling times that involve sellers incurring a loss may be considered unusual, because hold periods typically increase during housing value downturns, as sellers try to avoid making a loss,’ Core Logic Head Researcher Eliza Owen said.

‘The implication may be that some sellers are choosing to incur a loss from resale in order to avoid particularly high mortgage repayments in the current rate-hiking environment.’

Ms Owen said the past year has seen a more rapid deterioration in profitability across the unit sector relative to houses, and this contributed to a record gap in the share of profit-making sales across houses and units as of March 2023.

‘Given there is generally a higher concentration of investment ownership in the unit sector, the increase in servicing investment mortgages may be a factor contributing to the greater concentration of loss in unit resales,’ she said.

There is no negative impact of rate hikes on Sydney Realestate. Median price recovery faster. Are you still supporting Dead Cat bounce theory??? pic.twitter.com/0xnckZKUr3

— ParraPower (@parrapower2022) June 27, 2023

OPEC’s decision to drop supply earlier this month has created a tug-of-war in global oil supply. It seems that Russia has increased its discounted oil sales to China following a disagreement between Putin and his former ally, now paramilitary commander Yevgeny Prigozhin.

This internal conflict caused the Russian Rouble to experience a sharp decline over the weekend and pushed Russia to significantly increase its import of semiconductors and chips from China to fuel the war effort as Putin attempts to signal strength.

Riyadh’s decision to cut supply has been questioned by some market analysts.

‘Cutting production is easy but you are giving up market share to other countries like Russia,’ said Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank,
‘…it’s not easy to wrestle back your market.’

Hope is held by OPEC for a third-quarter rally in China will boost demand, but so far China has been unwilling to fully open its stimulus bag as it tries to manage a hot housing market.

The CCP Politburo meets in July and will likely announce further stimulus on top of the EV tax package that was announced earlier this month.

There have been debates among some OPEC delegates regarding the extent of the Federal Reserve’s influence on the oil-futures markets compared to the Saudi-led bloc. The Fed’s decision to increase rates has boosted the value of the dollar, causing commodities priced in the U.S. currency to become pricier for holders of other currencies, thereby suppressing prices.

Although some experts predict that Russia’s role as a permanent discount seller could hamper international oil prices in the future, they also highlight that Moscow’s oil production is expected to plummet significantly in the next few years due to a lack of investment and Western technologies which are seen as critical for many modern oil well operations.

Why can't oil rally? Remember, Russia never left the market (it just found new customers), and Moscow's geopolitical desperation will force it to sell even more energy https://t.co/jbUUT6ae2c

— Vital Knowledge Media (@knowledge_vital) June 27, 2023

Good morning all!

Hello, it’s Kiyrll with you today, I’m here to keep you updated on the latest market news.

Here’s today’s AI-generated image showing Tech’s quick turnaround.