Weekly Australia Market Wrap for the Week-Ended 06 October 2023

Another week where markets were looking for some certainty around direction but the economic and political signals were again mixed. Equity markets as a result were mixed.

Last week began with bond yields seeing upward pressure on yields and political uncertainty with the US House Speaker forced to vacate his role. This led to weakness in equities but by the end of the week, oil prices were lower and the composition of the US payroll (jobs) number soothed market fears.

The Down Jones Index was 0.30% weaker but the broader S&P500 closed 0.48% higher. The tech heavy Nasdaq gained 1.60%. Japan closed 2.71% lower, Hong Kong dropped 1.82% and the Eurozone fell 1.2%. China rose 0.84% over the week.

The Australian equity market was sold off quite heavily falling 1.34% (S&P/ASX200) and 1.47% (All Ordinaries Index) respectively. The Australian Dollar shed another 0.73% to close the week at $US0.6383 as the interest rate differential between the US and Australia makes our dollar look less attractive.

And while markets were closed over the weekend we saw a dangerous escalation of tensions in the Middle East as Hamas militants from Gaza stormed into Israel to murder and kidnap everyday civilians. Aside from the human tragedy it is an unknown factor for markets coming into the new week and could well see energy prices jump higher if markets fear it could spark wider unrest and tensions in the region.

In Australia the Reserve Bank kept cash interest rates unchanged at 4.10% for the first meeting of the new Governor, Michele Bullock. The rhetoric around keeping a close watch in inflation has a number of banks suggesting we could see one final rate rise at the November meeting of the RBA. New Zealand’s Reserve Bank also kept rates unchanged at 5.5% at its meeting last week. Both decisions were broadly expected.

The bigger impact on Australian equity prices were energy prices that took a hit. The sector fell a whopping 7.20% with Coal prices dropping 12.36% and Crude Oil falling 8.36%. Oil prices had broken through the $US90 a barrel several weeks back but have since retreated below $83. The price has suffered as global financial conditions become generally tighter and the US Dollar has strengthened.

Woodside Energy fell 6.30%, Santos dropped 6.96%, Beach Energy lost 8.54%, Karoon lost 7.58%, Whitehaven Coal lost 9.00% and Yancoal dropped 4.45%. Even uranium miner Paladin fell 6.36%.

Coronado shares dropped 13.37% last week as the coal producer lowered its production guidance for the 2023 year, blaming repairs to its Queensland mine site and adverse operating conditions at one of its US mines.

There wasn’t much to cheer about in the lithium sector either as it saw another bout of weakness. This takes the Lithium Carbonate losses to 45.85% since July 14.

Pilbara lost 9.07%, IGO fell 12.64%, Allkem lost 9.10% and Core Lithium shed 13.58%. Liontown Resources was almost the lone riser in the Lithium sector with mining magnate Gina Rhinehart’s Hancock Prospecting completing a fourth on-market buying spree taking it to slightly more than 50 million shares at around $152 million. The stake is around 14.67% of the company and becomes a significant impediment for US battery and chemical company, Albermarle, that is attempting to takeover the company.

The utilities sector fell 2.18% as higher interest rates crimped the returns available to shareholders. AGL lost 2.98% while APA (formerly AP Pipeline Trust) lost 2.65%.

Real Estate Trusts suffered a similar fate falling 1.31% with Stockland (-4.34%) and Mirvac (-3.29%) the worst performers.

Industrial shares fell 1.85%, Consumer Discretionary fell 1.51% and IT stocks dropped 1.23%. Appen again fell heavily dropping 16.13% as the market continues to question its push into generative Artificial Intelligence products. The stock traded as high as $3.76 in June and closed last week at $1.04 – a 72.34% fall.

Consumer Staples (-0.10%) and Financials (-0.12%) were the two best performing sectors as investors pivoted away from the volatile mining and oil sectors to seek a relatively stable earnings stream. CBA (+0.07%) and Westpac (+1.37%) managed to eke out small gains while NAB (-0.45%) and ANZ (-1.33%) lost a little ground.

One time market darling, Fund Manager Magellan Financial Group, announced that it saw fund outflows of 17% in September, continuing its woes of the past several years. The share price dropped 22.13% last week to close at $7.08. In July 2021 it was trading around $56.00.

PEXA, the digital property settlements company, fell 11.65% after announcing the acquisition of a UK conveyancing company, Smoove. The deal was valued at around $59 million.

This coming week we will be watching the fallout from the events in Israel, US inflation (Thu), China inflation (Fri) and Australian Consumer Confidence and Business Conditions (Tue).