The Australian: A new RBA crystal ball: house prices
The Reserve Bank’s house price model bodes ill for homeowners if rates increase. A 2% increase in the cash rate could slash house prices by over 15% in two years compared to a scenario where rates remain flat, the bank said in its bi-annual Financial Stability Review published on Friday. The central bank said three-quarters of fixed rate loans would mature by end-2023. When that happens, just over one in three owner occupiers may see payments leap by more than 20%.
Oil markets do drivers a favour
Motorists face a fresh wave of petrol price relief in coming days as global oil markets reverse gains made in the tumultuous days following Russia’s invasion of Ukraine. Oil prices decline as U.S., allies tap 240 million barrels from emergency stocks. Traders are also taking into account crumbling demand as China keeps lockdowns in place in its fight against the latest covid outbreak. Brent Crude settled at US$100.87 on Thursday, down from over US$130 in the first week of March. It typically takes about two weeks for cuts in international prices to be reflected in local prices at the pump.
Buffett buys some printers
The world’s top value investor has scored another deep discount. Buffett’s diversified holding company announced on Thursday that it had acquired some 121 million shares in US computer and printer manufacturer HP Inc. Worth around US$4.2 billion as of Wednesday close, news of the deal drove HP stock up 14.7%, putting an instant paper gain of $600 million in the Oracle’s pocket. Buffett has had a change of heart after saying in February that there was “little that excites” in markets. Last month he invested US$11.6 billion buying insurer Alleghany Corp and US$6.4 billion accumulating shares in Occidental Petroleum.
All eyes on June
The big four banks are all in agreement: rates will rise in June. This week, Westpac and NAB were among banks bringing forward forecasts for the first hike in Australia since 2010 from August to June. The updates come on the heels of Tuesday’s Reserve Bank meeting, which was marked by the decision to drop its traditional “prepared to be patient” mantra, taken by the market as a move towards a cash rate hike. Westpac’s been there and NAB only expects rates to be 1% in December.
Elon Musk spends big on Twitter
One of Twitter’s most avid users is now a member of the social media company’s board. Elon Musk disclosed a 9.2% stake in Twitter on Monday, positioning him as the company’s biggest shareholder, with more than four times as much at stake as its co-founder Jack Dorsey. He has since tweeted a poll asking followers if they would like an edit button (overwhelmingly yes) and posted a picture of himself smoking marijuana under the caption “Twitter’s next board meeting is gonna be lit.” Analysts kept fair value on freeze but said the acquisition could “impact Twitter’s long-term strategy”. Quiet.
Rio gets its fair share of criticism
As Russian sanctions go into effect worldwide, Rio Tinto is poised for an unintended windfall. Normal output from the Queensland Alumina refinery, one of the world’s largest, is divided between joint owners Rio Tinto and Russian aluminium company Rusal. After sanctions were imposed on Rusal, Rio Tinto has assumed control of operations and production “until further notice.”
Bond holder become bag holder
First years of negative yields, and now decades of disappointing quarterly performances. The bond market got no relief this week as traders worldwide kept dumping debt in a hawkish-sounding environment from central bankers. Bloomberg’s Global Aggregate index dropped 1% on the week, for an 8% loss year to date. Selling drove yields on Australian 10-year bonds above 3%, the highest level since 2015, when Tony Abbott was prime minister.
Market wrap: Interest rate jitters rattle ASX
Australian shares closed the week slightly weaker as investors digested a swag of bearish updates from central banks and markets.
The S&P/ASX 200 bounced early in the week but Wednesday and Thursday losses left the benchmark 0.2% lower. Consumer discretionary stocks also underperformed, down by 2.9% alongside weakness at Wesfarmers. Technology was not far behind, with its sector index down 2.6% as it fell in line with sharp drops in the US Nasdaq Composite.
“Macro is still the big story this week,” said Aaron Binsted, a portfolio manager at Lazard Asset Management. He cites hawkish noises from influential US Federal Reserve officials, repositioning for higher rates at the Reserve Bank, economic warning signs from the bond markets, where a crucial section of the yield curve briefly inverted, and softening forecasts for both growth and corporate earnings in the developed world and China.
Energy stocks rose on the ASX, led by Whitehaven Coal and New Hope, up 6.2% and 10.3% respectively as European leaders considered a ban on Russian coal. The sector rose 1.7%.
“It takes a long time to build a new coal mine, people are starting to think, oh maybe these prices will stick around for a while,” says Binsted.
In other news, Graincorp put up another profit upgrade for the year as wheat prices hit record highs. Shares rose 5.2% this week.
