Weekly Australia Market Wrap for the Week-Ended 16 June 2023

A favourable inflation report in the US saw the US Federal Reserve pause their interest rate hikes this week. Equity markets around the world rose strongly as a result. US inflation rose 4.0% year-on-year, down from the prior month of 4.9% and its peak of 9.1% in June 2022.

The S&P500 rose 2.58%, the Dow Jones Industrial Average rose 1.25%, the Nasdaq lifted a healthy 3.25% - taking its year-to-date gains to 30.79% - Hong Kong rose 3.35% and Japan’s Nikkei jumped another 4.47%. The Nikkei has been the surprise packet in 2023 and lifted 29.17% for the year-to-date.

The Australian market moved higher in the afterglow rising 1.81% (S&P/ASX200) and 1.90% (All Ordinaries Index) respectively.

The US is experiencing economic conditions sometimes referred to as a ‘Goldilocks’ scenario – not too hot and not too cold – with falling inflation and moderate growth.

Markets believe the US Fed will continue to raise interest rates at least twice by year’s end and managing the economic levers at this delicate point in the cycle will be challenging.

The hot sectors in Australia were IT (+6.51%) and Materials (+4.10%).

Financials (+3.67%) were close behind with CBA (+3.61%), Westpac (+3.57%) shading ANZ (+2.65%) and NAB (+2.74%).

IT stocks in Australia are up just over 30% year-to-date and have proven to be a solid ride for investors. WiseTech Global is a stand-out, up 57.96% for the year, 8.30% for the week and closing at another record high of $80.08.

Xero is another IT stock having a renaissance. It is still down from its all-time highs of $157.99 but up 66.10% for the year-to-date and up 9.90% for the week. NextDC, up 6.60% on the week, is up 41.98% year-to-date. One stock struggling is Appen. It fell 18.62% on the week as it digests its $60m entitlements issue.

In the Materials sector Lithium Carbonate prices have continued to rise since reaching its recent low in late-April. This week we saw Liontown Resources jump 14.96%, IGO lift 6.12%, Pilbara Minerals rise 3.60% and Allkem lift 3.45%.

The surprise move last week by the People’s Bank of China to lower borrowing rates by 10 basis points in order to try and stimulate its economy gave resources a big lift. Iron ore price jumped 4.46% and BHP (+5.19%), Rio Tinto (+3.51%), Fortescue (+9.80%) and Mineral Resources (+5.55%) all benefited. Copper lifted 2.86% and Steel Prices rose 1.89%.

The Gold price fell a modest 0.32% last week but Northern Star Resources (1.14%), DeGrey Mining (+2.26%) and Ramelius Resources (+2.11%) bucked the trend to post solid gains. De Grey Mining shares went into a trading pause as it responded to Western Australia media reports claiming it is "sitting" on an extra $3bn of mineral resource. The company said the media report related to an increase to its Mineral Resource Estimate by 1.1 million ounces of gold that was announced on June 15.

Crude Oil prices rose 2.29% lifting Woodside Energy (+2.41%), Santos (+2.15%) and Origin Energy (+0.95%).

Perhaps the surprise of the week in the Energy sector was embattle gas giant AGL. It held an investor day and updated the market, saying it expected to more than double its earnings in the coming year on the back of a sharp recovery in wholesale electricity prices and improved reliability across its coal-fired power stations. This followed a spate of costly breakdowns in 2022. The share price rose 7.61% to $10.60 a level not seen since March 2021.

Paladin Energy rose to a four-month high as uranium prices traded at their highest level all year. Shares in Paladin Energy were up 6.47% with talk that financial interest on low volume is forcing uranium prices upward. Net-zero targets are said to be assisting the renewed interest in the metal. A few ago there was speculation that the Government of Namibia was going to nationalise mining and petroleum companies. Paladin managed to soothe market fears this would happen and the stock has risen 43.69% since its low on May 30.

In another blow for inflation, insurance company IAG announced it was lifting premiums by 20% for home insurance and 14% for car insurance as cost increases across the economy were starting to bite. The IAG share price rose 8.46% on the week along with QBE (+2.28%), Suncorp (2.08%) and NIB (3.58%). Insurance stocks are often viewed as a safe haven for investors during recessions or tough economic periods as they are able to lift revenue without significant impacts to their business.

CSL this week updated investors and downgraded forecasts due to a number of factors but the Australian Dollar was chief amongst them. Foreign currency “headwinds” are set to cost the company $USD230m to $USD250m up from $USD175m forecast at the release of the half-year results. Earnings in blood collection centres will be well below expectations for the next financial year as margins fall and there is likely to be an impact of generic drugs competing against its iron deficiency drug Ferinject. Shares fell 9.12% for the week.

ResMed (-1.40%), Cochlear (-0.27%) and other shares with US Dollar exposure were sold off on the back of the CSL update.

The Australian Dollar closed the week at $USD0.6878, up 1.99% and continuing its run from under $USD0.6500 in late May as the RBA continues to hike interest rates.