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

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

The Star Entertainment Group Limited [ASX:SGR] shares are up 10.25% today after news that the company has agreed to sell the Sheraton Grand Mirage Resort Gold Coast.

The Star, which owns a 50% stake in the Australian Wattle Development Pty Ltd has reached an agreement to sell the Sheraton Grand Mirage Resort Gold Coast to entities owned by the Karedis and Laundy families for $192 million.

Australian Wattle Development paid $140 million for the asset in 2017 .

The news will be a welcome one to SGR shareholders as the cash strapped company has struggled recently with a $450 million fine being handed to the group at the end of May by AUSTRAC for failing Anti-money laundering standards.

The fine was on top of the $100 million fine handed to Star by the Queensland government for money laundering which also included the appointment of a special manager to oversee future activites.

The sale was likely pursued after the company announced its $3.6 billion Queens warf project has been delayed yet again. The previous opening date was around christmas this year but is now projected to be open by April 2024.

Robbie Cooke, managing director of Star, told the ASX earlier this month that the Queen’s Wharf project opening was delayed due to the pressures facing the infrastructure sector.

‘The revised opening date follows careful consideration of current progress by our builder,’ Mr Cooke said.

‘Queen’s Wharf has not been immune from the types of pressures that other major infrastructure projects across Australia have encountered.’

‘We are disappointed, but this transformational development for Brisbane has been eight years in the making already, and it will be well worth the wait.’

The Queen’s Wharf project is a 50:50 joint venture with Hong Kong companies Far East Consortium, which includes the controversial figure Chow Tai Fook.

Chow Tai Fook is known to have had strong ties to Stanley Ho, legendary Macau casino godfather who’s link to organised crime was well documented. Mr Ho passed in 2020, aged 98.

 

The ASX200 is up 1.08% today as traders remain hopeful that the latest CPI figures will reduce the chance of another interest rate hike in July.

Upon the release of the CPI figures at 11:30am the ASX rose 97 points and since then has remained around 7,195

Market analysts remain split on whether the news will change the RBA’s stance moving forward.

After the CPI release today, macro strategist at Rabobank Benjamin Picton remained cautious, stating:

‘The headline miss was driven by volatile items of automotive fuel and travel and accommodation. We believe these will rebound in June. Moreover, the details were still hawkish with core services prices accelerating, while capacity constraints in the housing sector imply ongoing inflation in rents and new-dwelling purchase costs. There is some dovish risk from a fall in discretionary goods category, but overall, we believe the RBA would be wary of sending the wrong signal by pausing at a time when house prices are still rebounding. Thus, we still expect two more 25bp hikes in July and August.’




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 Global Supply Volatility Index (GSVI) is a measure of the volatility of global supply chains.

It is calculated by S&P Global using data from their Purchasing Managers’ Index (PMI) surveys, which are sent to companies in over 40 countries.

The GSVI is a weighted sum of six sub-indices, which measure different aspects of supply chain volatility, such as demand conditions, shortages, transportation costs, inventories and backlogs.

The latest update to the index looks positive.

Great news for the global economy 🚨

The global supply chain crisis of 2020-2022 is now over pic.twitter.com/S14zYKr2ig

— Science Is Strategic (@scienceisstrat1) June 25, 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

ASX 200 opened up 0.56% this morning after a strong bounce in US equities sent global markets bullish.

Signs from the Fed and European Central Banks for further interest rate hikes have sent energy prices down, with oil being hit the worst.

Senior Market Analyst for Oanda, Edward Moya, remarked on the weakness today, saying:

‘Oil is looking very vulnerable here as it is getting close again to the spring lows near the upper mid- $US60s.’

‘One more plunge and that should make OPEC+ very nervous. A drop below the $US67.50 level could trigger momentum selling that won’t stop until the $US62.50 region.’

All figures shown are from 10:00am

• $AUD down slightly -0.06% at 66.81 US cents
• ASX futures up +0.07% to 7,099.5
• S&P 500 up +1.15%
• NASDAQ up +1.65%
• DOW up +0.63%
• FTSE up +0.11%
• STOXX up +0.72%
• SSE up +0.72%
• Bitcoin up +1.35% to $US 30,684
• Spot gold up +0.05% to $US 1,914.74
• Iron ore down -0.17% to $US 112.46
• Brent Crude down -2.01% to $US 72.69pb