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Post Market Wrap | Budget Forecasts Confirm Robust Economic Outlook



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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Tech layoffs reach their highest point in over 20 years



There have been over 130,000 layoffs across the technology sector in the last five months

The technology sector was billed as the most exciting industry to work in.

Big offices, big dreams, big money were all part of the parcel for many companies attracting staff.

As many organisations caught onto the momentum of the pandemic, the same energy has not been particularly met on the other side.

Thousands of workers have since been laid off as the good times stopped rolling.

In fact, the technology sector’s layoffs are the highest since the dotcom bubble burst 22 years ago.

The BT Group is one of the latest companies cutting staff.

Fifty-five thousand have lost their jobs as part of a corporate restructure.

CEO Philip Jansen will freeze his £1.1 million salary until he retires, according to reports from Sky News.

The ground is also shifting as artificial intelligence takes hold and the economy worsens.

BT Group said it is laying off 11,000 staff because of the increased capacity for artificial intelligence in the workplace.

At the same time, companies like Apple and Goldman Sachs are among those restricting or banning the use of tools like ChatGPT amid privacy or data concerns.

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Big tech crackdown on employees using ChatGPT



Apple and Samsung are among companies restricting or banning the use of ChatGPT

Some of the world’s largest technology companies, including Apple and Amazon have banned or restricted OpenAI’s ChatGPT.

The tool relies on artificial intelligence to produce responses to prompts entered by users.

However, major brands remain concerned around the privacy risks because of the data ChatGPT uses to improve its accuracy.

Samsung has previously reported employees unintentionally leaking confidential internal source code and meeting recordings through ChatGPT.

Meanwhile, Apple has banned the web-platform over concerns surrounding data leaks.

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Can Linda Yaccarino save Twitter’s falling ad sales?



Linda Yaccarino has officially taken over as Chief Executive Officer at Twitter

Linda Yaccarino was once the head of NBC Universal’s advertising and partnerships team.

Her appointment follows a Twitter poll where Musk asked users to vote on whether he should resign.

At the time, 57.5 per cent voted ‘yes’.

Twitter is undergoing a transformation, including addressing concerns around rising hate speech and disinformation on the platform.

Mr Musk said Yaccarino is the perfect person for the job.

“I think Linda’s going to do a great job running Twitter. I’ll provide guidance on technology development.

“Twitter has released more changes in the last six months than it has in the last six years.”

Twitter said it has taken down over 6 million pieces of content in the first half of 2022, before the platform was acquired over by billionaire Elon Musk.

Benjamin Powers is a technology reporter at The Messenger, who said the platform has some issues to address.

“It’s unclear how much he’ll [Musk] be stepping back.”

The New York Times reports advertising revenue attracted US$88 million from 1 April to the first week of May—a decrease of 59 per cent from a year earlier.

“I think the big problem is revenue. The pullback is that they’ve lost about 58 per cent of advertising revenue, which is huge for a company like Twitter.

“The subscription business, which involves getting a blue check, you pay $8 a month, really hasn’t kept up with that dynamic,” he said.

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