ASX News Live | ASX Rises; Wall Street Firms Bets Fed Will Moderate Rate Hikes

In her opening statement to the Senate Select Committee on the Cost of Living, Reserve Bank of Australia’s Marion Kohler said inflation has likely peaked at the end of 2022 at around 8%.

The central bank thinks inflation will ease ‘over the course of this year’.

Kohler also addressed the rising cost of living, which for employee households is outpacing CPI due to much higher mortgage interest charges.

Kohler admitted living costs in Australia have ‘increased significantly’. This has been exacerbated by declining real incomes:

“It is clear that the cost of living in Australia has increased significantly. But that is not the full picture. What matters also is whether people’s means to pay these costs – their incomes – have kept pace. Over the past year or so, consumer prices have grown faster than households’ disposable incomes, meaning that real incomes have declined overall.

“The experience of individual households varies widely. Hourly wages have picked up, but not by as much as inflation, and so some workers who have remained in the same job and with the same hours will have seen their real incomes decline significantly. Still, many households have been able to benefit from the strong labour market. Some now have a job who previously didn’t, while others have been able to pick up more hours or move to a better paying job. The large increase in the minimum and award wages in the middle of last year has also helped many households. And most welfare payments are indexed to inflation, which should help support the incomes of many lower-income households.

“While those relying on interest income – such as self-funded retirees – have seen their incomes boosted by higher interest rates over the past year, those with mortgages will be feeling the effects of the rise in interest rates. We understand that some people are finding the rise in interest rates difficult to manage and others will have to cut back on discretionary spending. However, higher interest rates are necessary to ensure that the current period of higher inflation and cost of living pressures does not persist too long. As the Governor has emphasised, the Reserve Bank Board is focused on returning inflation to target and establishing a more sustainable balance of demand and supply in the Australian economy.”

 

Household living costs rose 3.2% in the December 2022 quarter, according to the ABS. December quarter’s living costs rose higher than the consumer price index, which rose 1.9%.

The 3.2% quarterly increase was the largest quarterly increase in living costs of all household types since September 2000 quarter.

Not only that, household living costs registered their largest ever annual increase since the series began in 1999 of 9.3% in the 12 months to December, higher than December’s annual CPI of 7.8%.

The biggest contributor to rising living costs was mortgage interest charges, which rose 26.6% in the quarter.

Household living costs refer to living costs incurred by salaried households.

Michelle Marquardt, ABS head of prices statistics, said:

“Employee households were particularly impacted by increases in mortgage interest charges, which make up a higher proportion of overall expenditure for these households compared to the other household types.

“Mortgage interest charges for Employee households rose 26.6 per cent over the quarter, and 61.3 per cent over the year, with banks passing on the Reserve Bank of Australia’s cash rate rises to interest rates for both variable and new fixed rate home loans.”

Source: ABS

IFM chief economist Alex Joiner pointed out the irony in all this:

A key difference in this cost of living measure from the CPI is that it includes mortgage costs (excluding new dwellings that are in the CPI), these are up 27% in the December quarter alone.

The irony that the remedy for a cost of living crisis is to increase the cost of living pic.twitter.com/BWDAHRHJ1A

— Alex Joiner 🇦🇺 (@IFM_Economist) February 1, 2023

It seems smuggling over the US-Mexico border is increasing, with more people trying to contraband one hot item into the US.

It’s not drugs…but eggs.

Yep, you heard right.

More Americans have been trying to smuggle chicken eggs across the border after egg prices shot up a whopping 60% in one year.

Why?

Seems that the culprit — along with inflation, of course — is an avian flu. Although, there are plenty of ‘chicken conspiracies’ getting around the internet…along with memes:

Source: Gizmodo

I know it’s a meme, but notice how wealth has shifted from paper money to physical things.

Welcome to the era of shortages, inflation, and supply disruption.

We’ve been talking plenty here in Money Morning about scarcity. In fact, if you haven’t already, check out James Cooper’s ‘Age of Scarcity’ presentation.

Investment into the energy transition keeps ramping up and, in this respect, 2022 didn’t disappoint.

Last year was a record year in investment into the transition with a total of US$1.1 trillion flowing into the sector, according to BloombergNEF:

Source: Bloomberg NEF

But what’s even more striking is that 2022 was also the first year where investments into the energy transition came head to head with fossil fuels. Global fossil fuel investments including upstream, midstream, downstream, and unabated fossil power generation were also US$1.1 trillion.

As BloombergNEF said:

‘Our findings put to bed any debate about how the energy crisis will impact clean energy deployment. Rather than slowing down, energy transition investment has surged to a new record as countries and businesses continue to execute on transition plans. Investment in clean energy technologies is on the brink of overtaking fossil fuel investments, and won’t look back.’

One more thing about this…

While the largest sector in investment terms for the transition is still renewables, raking in US$495 billion in 2022, looking at the graph above, you can see the massive jump in electrified transport (in green).

Spending on electric vehicles and infrastructure came in at US$466 billion, or a whopping 54% increase year-on-year.

Not only is investment flowing in, but incentives are also starting to flow.

Online publication Semafor reported that OpenAI — the company behind the wildly popular chatbot ChatGPT — is on a hiring spree. Part of the expanding workforce has the ironic task of potentially making itself obsolete.

A substantial swathe of newly hired computer programmers are refining OpenAI’s models to better learn software engineering tasks.

As Semafor noted, OpenAI already has a subsidiary — Codex — that aims to translate natural language into code.

Hence the quip going viral on Twitter that English is set to become the hottest programming language:

‘Silicon Valley executives envision products that allow creative people with little to no coding experience to build everything from web sites to video games simply by describing their visions to an AI algorithm.

“The hottest new programming language is English,” tweeted Andrej Karpathy, the former head of AI for Tesla.’

The hottest new programming language is English

— Andrej Karpathy (@karpathy) January 24, 2023

2022 was a good year for macroeconomists. Inflation was up, interest rates were finally something people cared about again, and betting on a recession was rivalling sport.

Interest in macro topics was so high that macroeconomists may have finally found themselves the centre of the dinner party.

We haven’t talked about macroeconomic topics like this since the onset of the pandemic and the global financial crisis.

And if you look at Google Trends, we seem to be talking about these topics more than ever:

Source: Google Trends

But is any of that talk insightful? Or is it all hot air?

Economic indicators

People don’t talk about macroeconomics at dinners or the watercooler for the sake of the concept.

Inflation and interest rates are interesting mainly because of their consequences. We discuss them because we want to know what they mean for our future.

The future of our savings, our mortgages, our purchasing power, our portfolios.

We want to anticipate where inflation and interest rates are heading so we can prepare. But anticipating macroeconomic events is hard.

Leading indicators are noisy and laggy.

But some indicators are useful. Central banks must base their decisions on something.

So what indicators are sound?

https://www.moneymorning.com.au/20230131/leading-economic-indicators-and-the-stock-market.html

Lithium stocks fell sharply yesterday but are paring some of those losses today.

ASX #lithium stocks fell sharply on Tuesday:

– $SYA down 11.9%
– $LLL down 9.6%
– $INR down 7.5%
– $AKE down 7.5%
– $IGO down 7%
– $LKE down 6.9%
– $LTR down 5.7%
– $CXO down 5.7%
– $GLN down 5.7%
– $PLS down 5%#ASX #ausbiz

— Fat Tail Daily (@FatTailDaily) January 31, 2023

Sayona Mining (ASX:SYA) was hardest hit yesterday. The lithium junior released its December quarterly after hours on Tuesday, reporting huge free cash flow spend as it seeks to ramp up to production.

Is a capital raise in the offing for Sayona early this year?

ASX #lithium stocks pared some of Tuesday's losses at the open on Wednesday:

– $PLL up 5.5%
– $AKE up 3.2%
– $PLS up 3%
– $INR up 2.8%
– $LTR up 2.6%
– $GLN up 2.2%
– $SYA up 1.9%
– $LLL up 1.6$
– $LKE up 1.5%#ASX #ausbiz https://t.co/mk90ib2dwv

— Fat Tail Daily (@FatTailDaily) January 31, 2023

Good morning!

Here’s a quick recap of what went down overnight.

US stocks finished higher

Investors remain optimistic the US Fed will ease off and moderate the pace of its interest rate hikes. Especially after the latest wages data. Worker pay gains in the US cooled in the December quarter, and US employers spent less on wages and benefits in the quarter than forecast. That strengthened the market’s prediction that the Fed will only raise rates by 25 basis points later this week.

Defensive stocks underperform, risk appetite grows

In other interesting news, US defensive stocks are under-performing the wider market this year. The only sectors recording losses in the S&P 500 are utilities, consumer staples, and healthcare. But riskier assets are booming. Take the emblematic risk-on asset Bitcoin. It’s up over 35% this year, but Bitcoin miners are zooming even higher. Crypto-themed ETFs were some of the worst-performing ETFs of 2022, but one of the crypto ETFs — the Valkyrie Bitcoin Miners ETF — has been the best-performing equity ETF globally in the first few weeks of 2023, according to Morningstar.

FT: $WGMI has been the best-performing unleveraged equity ETF globally in the first few weeks of 2023, according to data from Morningstar Direct, although it is still down by two-thirds since inception in February 2022.https://t.co/URWatK8xJR

— Fat Tail Daily (@FatTailDaily) January 31, 2023

There’s an appetite for risk at the moment.

Will it last?