Connect with us


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.

Continue Reading


Management shake up at under fire Qantas



There’s been a management shake up at Australia’s flag carrier airline Qantas, which has come under fire for cancellations and delays

Jetstar CEO and longtime Qantas executive Gareth Evans has resigned.

He was touted as a potential replacement for controversial Qantas CEO Alan Joyce.

Gareth Evans has been with Qantas for 23 years.

He has been chief of Jetstar since 2017, but has worked across the group and has now “decided this is the right moment to move on”.

This comes as the aviation grapples with the higher fuel prices and staffing issues at airports that are affecting much of the industry globally.

Strong demand

Qantas has also updated the market, saying it’s on track to record second half earnings of just over 500 million dollars.

Underlying profit is set to return in FY23, while debt levels are now well below pre-pandemic levels.

Qantas says this is due to continued strong domestic and international travel demand.

Qantas has come under fire for long delays and cancellations
Qantas has come under fire for long delays and cancellations

After peaking at more than $6.4bn at the height of the pandemic, net debt is expected to fall to around $4bn by June 30, an improvement of around $1.5bn in the past six months.

The airline has come under sustained pressure, with many passengers complaining about long queues, cancellations and delays.

Qantas is calling for patience ahead of the winter school break rush as it hires more staff to manage increased demand at airports.

Continue Reading


Nike to fully exit Russia




U.S. sportswear maker Nike is making a full exit from Russia, three months after suspending its operations there, the company said in an emailed statement Thursday

The sportswear giant had said back in March that it would suspend operations at all the stores it owns or operates there.

On Thursday (June 23) the firm said it would leave the country altogether.

In a statement, Nike said it would scale down over the coming months.

The move is largely symbolic for the company, which gets less than 1% of its revenue from Russia and Ukraine combined.

It says any stores that are still open there are run by independent partners.

In May, Russian media reported that Nike had not renewed agreements with Inventive Retail Group, its largest franchisee there.

Now the full exit lputs Nike in line with other major western brands such as McDonald’s and Google.

Foreign companies seeking to leave face the prospect of new laws being passed that will allow Moscow to seize assets and impose criminal penalties.

That has prompted some businesses to accelerate their departure plans.

Continue Reading


U.S. orders vape company Juul to cease sales




Juul has been an industry leader in the vaping sphere since its establishment in 2015, controlling 75 per cent of America’s market by its third year of operations.

This is just the latest crackdown on the Tabacco industry by the Biden administration, all part of a sweeping effort to regulate the sector after years of delay.

The White House has also announced a rule to establish a maximum level of nicotine in tobacco products in an attempt to make them less addictive.

After a nearly two-year-long review, the FDA said Juul submitted insufficient and conflicting data to show that its e-cigarettes met public health standards.

The regulator also said the findings raised “significant questions,” including whether potentially harmful chemicals could leach out of Juul pods.

The decision potentially deals a fatal blow to the once high-flying San Francisco company.

Juul did not immediately respond to a Reuters request for comment.

The FDA had to judge whether Juul’s products, which have been sold for years without being officially authorized by the agency, were effective in getting smokers to quit and, if so, whether the benefits to smokers outweighed the potential health risks to new e-cigarette users, including teenagers.

“They prey on children.”

Democratic Senator Dick Durbin hailed the decision by the FDA on Thursday, but said “they’re in for a legal battle for sure.”

Earlier this week, the Biden administration said it also plans to propose a rule establishing a maximum nicotine level in cigarettes and other tobacco products to make them less addictive.

Continue Reading

Trending on Ticker

Copyright © 2022 The Ticker Company PTY LTD