Weekly Australia Market Wrap for the Week-Ended 8 Dec 2023

Last week saw the Reserve Bank of Australia keep cash rates on hold at 4.35% after the October monthly inflation print was 4.9%, down from the September number of 5.60%.

There is no RBA meeting in January so the RBA will have until early February to assess the economic conditions over the Australian Christmas and New Year holiday season. This was an overall positive for Australian equity markets with a number of analysts suggesting that RBA has seen the last of rising rates and the next move is likely to be down, albeit not until late 2024 or early 2025.

The S&P/ASX 200 closed up 1.71% and the All Ordinaries Index rose 1.65%.

In the US, markets rallied late to see the sixth week of rises from the Dow Jones (+0.01%), Nasdaq (+0.69%) and the S&P 500 (+0.21%). Google released its new AI model, Gemini, on Thursday and that saw a string rally in Alphabet shares to help the Nasdaq finish the week in the black.

Elsewhere, Japan was down 3.36% on the back of speculation the Bank of Japan is poised to raise interest rates – abandoning the last of the world’s negative interest rate regimes and creating a seismic change for one of the world’s most stable markets. The BoJ meets on Dec 18-19.

Dovish comments from the European Central Bank saw European equities up 1.30% for the week.

Hong Kong fell 2.95% and China shed 2.05%. Sentiment on China was lower after Moody’s Investor Service cut its ratings outlook to negative. The rating on China’s debt remained unchanged however.

10 year bonds in Australia fell 15 basis points to 4.35% and 2 year bonds fell 10 basis points to 4.07% as markets factored in a potential ceiling to cash rates.

In the US 2 year bonds rose 15 basis point to 4.72% while the 10 year bonds were flat at 4.22%.

The Australian dollar fell 0.41% to close the week at $US0.6580.

Gold closed the week at $US2021 an ounce after hitting a record high of $US2135 an ounce.

Oil had another volatile week closing down 3.79% at $US71.26 a barrel after a stronger US Dollar but also market gauges showing supply outstripping demand. OPEC has been meeting and has committed to production cuts but traders appear unimpressed and sold forward contracts. Saudi Arabia lowering its selling price into Asia was also seen to be a catalyst for weakness as the major exporter wants to clear inventory.

The Energy sector fell 1.29% but it may have been more if not for the surprising news that Australia’s two largest oil and gas producers, Woodside and Santos are discussing a potential merger. A merger would create an $80 billion energy giant.

Woodside closed down 3.34% and Santos closed up 5.07%.

Earlier in the week shareholders of Origin Energy voted down a $20 billion proposal to buy the company from Brookfield and EIG Partners. The final vote tally was 66.97% in favour, well short of the required 75% vote.

The Iron Ore price rose 3.82% to $US135.45 per tonne – the highest level for the year - and following this Rio Tinto rose to 2 year highs closing at $128.89 up 3.18%. BHP closed at $47.74 up 3.02%. Fortescue closed up 2.18% to $25.75. China’s iron ore reserves are said to be at the lowest level for this time of year since 2016.

The Health Care sector closed up 2.07%, Industrials finished up 1.20%, REITs rose 3.52%, IT gained 2.13%, Materials lifted 2.03% and Financials gained 1.55%.

In company news Sigma Healthcare shares were put into a trading halt as the company was said to be undertaking a $350 million capital raise to facilitate a backdoor listing of the retail giant Chemist Warehouse. The listing would in effect be a reverse takeover of Sigma.

Perpetual shares rose 14.01% after Washington Soul Pattinson announced a $3 billion proposal to buy the business and break up its funds management businesses. Perpetual rejected the offer out of hand saying the bid materially undervalues the company.

In other local economic news Australia’s GDP only grew 0.2% in the September quarter. This was significantly below the June quarter’s 0.4% and well-below market expectations of 0.4%. While this number was released after the RBA meeting, the RBA would have been aware of the weakness and factored this into its decision to keep rates on hold.

In the week ahead we will be watching the Consumer Confidence and Business Conditions data (Wed), the Federal Government’s Mid-Year Economic Forecast (Wed).

Internationally, the Central Banks of US, Europe and the UK will be meeting for the final time in 2023, and Economic Activity data for China will be released on Friday.