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Post Market Wrap | Budget Forecasts Confirm Robust Economic Outlook

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This Post Market Wrap is presented by KOSEC – Kodari Securities

  • Cost of living payments and infrastructure expenditure positive for the economy 
  • Full employment + strong GDP growth = Inflationary pressure
  • RBA response to inflation will see interest rates rise
  • Bond yields currently reflect higher future interest rates, but economy to remain strong 
  • Equity markets most likely to follow the economy and remain positive

Federal Budget Economic Boost

Full employment, strong economic growth and high commodity prices for Australian exports, support continuing positive momentum for the Australian share market. This is because household consumption remains buoyant following a cut in fuel excise and the announcement of cash payments for low and middle income earners, to alleviate cost of living pressures. Targeting low and middle income earners delivers an immediate cash boost to the economy because that money usually gets spent quickly. Consumer stocks are likely to benefit immediately from this budget initiative. 

Infrastructure expenditure featured prominently in the budget outlays, with $17.9 billion set aside for various projects. Far North Queensland will see a $5.4 billion dam constructed while $0.7 billion has been set aside for the Melbourne international terminal at a cost of $3.1 billion. $0.7 billion will be spent on inland roads and $0.5 billion on NBN upgrades. 

This expansionary budget, at a time of full employment, is supportive of business earnings growth and that should underpin the share market at current levels, at least for the foreseeable future.

Robust Economic Growth

A key feature of the budget forecasts is the markedly improved growth outlook for the Australian economy. Economic growth, as measured by Gross Domestic Product (GDP), has been revised upwards from the government’s mid-year economic and fiscal outlook statement. GDP for 2022 is now estimated at a very robust 4.25 percent (previously 3.75 percent) and for 2023 GDP is estimated to increase by 3.50 percent before easing slightly to 2.50 percent in 2024. These are strong growth numbers. 

The equity market will follow the economy. This is another reason to be confident that the share market and other asset prices, including property, should remain buoyant in the period ahead.

Strong economic growth is conducive to strong employment growth. Unemployment now sits at 4 percent. At this level, there have never been more Australians in a job than at present. The budget anticipates unemployment to fall to 3.75 percent in 2023 and remain at this level for the following 3 years. This represents a tight labour market, not seen in nearly 50 years. 

Although full employment is generally positive, a note of caution is warranted. Strong economic growth at a time of full employment can lead to higher wages, which in turn creates inflationary pressure. The appropriate response by the Reserve Bank (RBA) under these circumstances, is to increase interest rates. This is aimed at curtailing consumer demand to a level where inflation is contained within RBA parameters. Currently, the RBA inflation target band is between 2 and 3 percent, on average, over time. The 2022 budget forecasts provide for inflation to move 3 percent in 2023. This, being at the high end of the RBA’s target range, implies higher interest rates from late 2022 and into 2023. The 10-year Australian government bond yield heading toward 2.9 percent in reaction to the Federal Budget, confirms that interest rates are set to rise.

Image: File

It is important however to recognise that interest rates are set to rise for the right reason and is a reflection of the confluence of domestic and global events that have recently tilted in Australia’s favour. This includes historically high commodity prices for Australian exports of LNG, coal, iron ore and for agricultural products like wheat and beef. High export volumes have accompanied these high commodity prices, resulting in Australia presently running a current account surplus with the rest of the world. Coupled with full employment, this outcome is unambiguously positive for all Australians. 

What is good for Australians is also good for our equity market. The current economic and financial state appears likely to persist for the foreseeable future, which implies a continuation of the positive trend in Australia’s share market.  

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.

"Michael Kodari is one of the world's most consistent, top performing investor. A philanthropist and one of the prominent experts of the financial markets, he has been referred to as ‘the brightest 21st century entrepreneur in wealth management' by CNBC Asia and featured on Forbes. Featured on TV as the "Money Expert", on the weekly Sunday program "Elevator Pitch", he is recognised internationally by governments as he was the guest of honour for the event "Inside China's Future", chosen by the Chinese government from the funds management industry, attended by industry leaders, when they arrived in Sydney Australia, on April 2014. Michael and George Soros were the only two financiers in the world invited and chosen by the Chinese government to provide advice, and their expertise on Chinese government asset allocation offshore. With a strong background in funds management and stockbroking, Michael has worked with some of the most successful investors and consulted to leading financial institutions. He was the youngest person ever to appear on the expert panel for Fox, Sky News Business Channel at the age of 25 where he demonstrated his skillset across a 3 year period forming the most consistent track record and getting all his predictions right over that period. Michael writes for key financial publications, is regularly interviewed by various media and conducts conferences around the world."

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Wall Street hits record highs on low inflation

Wall Street hits record highs on cool inflation and strong earnings ahead of key Federal Reserve interest rate decision

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Wall Street hits record highs on cool inflation and strong earnings ahead of key Federal Reserve interest rate decision

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In Short:
– U.S. stocks rose to record highs on Friday due to lower inflation and strong corporate earnings.
– Key earnings reports from major companies are expected next week, influencing market trends.
U.S. stocks rose to record highs on Friday due to lower-than-expected inflation data and positive corporate earnings.The S&P 500 and Nasdaq achieved their largest weekly gains since August. The Dow saw its biggest jump from Friday to Friday since June.

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The Labor Department reported that the Consumer Price Index was slightly cooler than analysts’ predictions, easing concerns about inflation impacts from tariffs. This development suggests a likely interest rate cut by the Federal Reserve at its upcoming meeting.

Ryan Detrick from Carson Group noted the positive inflation news may facilitate forthcoming Fed rate cuts. Despite the ongoing government shutdown affecting data releases, this CPI report provided much-needed clarity.

Earnings reports are continuing, with 143 S&P 500 companies having reported results. Growth expectations for third-quarter earnings have risen to 10.4%. Detrick indicated a strong opening to the earnings season with a significant percentage of companies exceeding expectations.

This coming week, key earnings will be reported from Meta Platforms, Microsoft, Alphabet, Amazon, and Apple, alongside industrial companies like Caterpillar and Boeing.

The Dow rose 472.51 points to 47,207.12. The S&P 500 increased by 53.25 points to 6,791.69, while the Nasdaq gained 263.07 points, reaching 23,204.87.

Alphabet gained 2.7% following a deal expansion with Anthropic. Coinbase saw a 9.8% increase from a JPMorgan upgrade. In contrast, Deckers Outdoor’s shares fell 15.2% after lowering sales forecasts.

Market Trends

Advancing stocks on the NYSE outnumbered decliners by 2.18 to 1. The S&P 500 had 34 new highs, with the Nasdaq recording 124.

Trading volume was 19.04 billion shares, lower than the average of the past 20 days.


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US stocks face tests from Tesla, Netflix earnings

US markets brace for Tesla and Netflix earnings amid rising volatility and delayed inflation data

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US markets brace for Tesla and Netflix earnings amid rising volatility and delayed inflation data

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In Short:
– Earnings reports from Tesla and Netflix might affect U.S. stock performance next week amid high inflation concerns.
– Increased market volatility arises from U.S.-China trade tensions and fewer S&P 500 stocks in an uptrend.
This coming week, earnings reports from companies including Tesla and Netflix are anticipated to impact U.S. stock performance.
Investors are also awaiting delayed U.S. inflation data, which could test market stability as it remains near record highs.Recent trading activity has shown increased volatility, influenced by ongoing U.S.-China trade tensions and concerns regarding regional bank credit risks. The CBOE volatility index has seen a rise, indicating increased market uncertainty.

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The S&P 500 entered its fourth year of growth amidst these fluctuations, having previously experienced a period of calm. Experts suggest market risks are intensifying as valuations reach peak levels.

Market Volatility

Concerns regarding U.S.-China trade relations escalated last week when the U.S. threatened to raise tariffs by November 1 over China’s rare-earth export policies. President Donald Trump is scheduled to meet with President Xi Jinping in two weeks to discuss these issues.

Despite these challenges, major stock indexes gained ground over the week, with the S&P 500 up 13.3% year-to-date. However, a noticeable decline in the number of S&P 500 stocks in an uptrend raises caution among investors about underlying market weaknesses.

The upcoming third-quarter earnings will be closely monitored, especially as the government shutdown halts economic data releases. Companies like Procter & Gamble, Coca-Cola, RTX, and IBM are due to report. The delayed U.S. consumer price index is also expected to provide crucial insights ahead of the Federal Reserve’s monetary policy meeting on October 28-29.


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Australia’s unemployment rate rises to 4.5 per cent

Australia’s unemployment rate rises to 4.5 per cent in September, prompting calls for potential Reserve Bank interest rate cut

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Australia’s unemployment rate rises to 4.5 per cent in September, prompting calls for potential Reserve Bank interest rate cut

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In Short:
– Australia’s unemployment rate rose to 4.5% in September, the highest since November 2021.
– Economists note a cooling labour market, with fewer job ads and increased participation rate amid rising living costs.
Australia’s unemployment rate increased to 4.5 per cent in September, up from 4.3 per cent in August.It marks the highest seasonally adjusted unemployment rate since November 2021.

Economists suggest that the Reserve Bank should consider another interest rate cut next month. BetaShares chief economist David Bassanese noted a slowdown in employment demand as the labour market struggles to accommodate job seekers.

The number of officially unemployed rose by 33,900 in September, while the employment count increased by 14,900. The labour force expanded by 48,800 people, resulting in a participation rate rise of 0.1 percentage points to 67 per cent, returning to July levels.

In trend terms, the unemployment rate remained steady at 4.3 per cent.

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Labour Market

BDO chief economist Anders Magnusson stated that while the unemployment rate has increased, the labour market is cooling, not collapsing.

He pointed out that the 14,900 jobs added in September were slightly below the average for the past year.

A growing participation rate indicates that rising living costs are prompting more individuals to seek employment. Magnusson said the release confirms a gradual cooling of the labour market that keeps the Reserve Bank on track without necessitating immediate action.

He added that hiring activity is slowing, signalled by a 3.3 per cent drop in job advertisements in September, the largest monthly decrease since February 2024.

Despite this, he does not foresee a rate cut in November.


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