Note from the MD: Markets bullish as economic data points to lower terminal rate

Just a day away from another Fed rate hike decision, US markets have surged after fourth quarter inflation data showed labour costs had increased at their slowest pace in a year. The S&P 500 stacked on almost 1.5%, the Nasdaq over 1.6%. Data released yesterday showed demand for US crude and petroleum products also rose in November, which combined with a slightly weakened US dollar allowed Brent oil to finish up 1% last night.

Just a day away from another Fed rate hike decision, US markets have surged after fourth quarter inflation data showed labour costs had increased at their slowest pace in a year. The S&P 500 stacked on almost 1.5%, the Nasdaq over 1.6%. Data released yesterday showed demand for US crude and petroleum products also rose in November, which combined with a slightly weakened US dollar allowed Brent oil to finish up 1% last night.

A sharp decline in retail sales data has fuelled further speculation that the RBA will be able to back off sooner than previously expected. On a seasonally adjusted basis, December retail sales were 3.9% lower, which in turn lead money markets to reduce the expected terminal cash rate to 3.7%, down from 3.8% before the data was released. The ASX 200 is trading 0.5% higher today (1/2/23), and is still just shy of 1.5% from its all time high in April 2022. Weak December retail sales data has also spurred on the notion that Australians might not have to see rates above 4%.

The latest quarter saw inflation in Australia reach a close-to-33-year high of 7.8%. Despite falling short of the Reserve Bank’s prediction of 8%, experts anticipate that the underlying price growth will lead to increased interest rates.

Due to the Reserve Bank’s firm stance on inflation, economists anticipate another rate hike in February and possibly March. The high inflation rate and the possibility of rising interest rates has caused a change in the bond market, with the expected peak interest rate reaching 3.7%.

With Implied Volatility nearing 52 week lows and falling, this generally implies that markets have risen and should continue to rise. When volatility is this low option trading strategies where entering via is debit is more attractive as they get the dual benefit of volatility increase and/or market movements. Depending on investors’ outlook of the recent inflation print and impact on the market, now would be an opportune time to take advantage of cheaper options.

Manufacturing and services data out of China has largely been in line with economists expectations and shows that the country’s reopening is quickly pushing on, with an expansion observed in January. The manufacturing purchasing managers index rose to 50.1 from 47 in December, and the services and construction sectors index jumped to 54.4 from 41.6.

Artificial intelligence has been quickly heating up after the explosion in interest in ChatGPT. Microsoft has now invested a total of US$10 billion in their parent company, OpenAI. A smaller but still interesting transaction in bone fragility imaging company Curvebeam AI took place, with Andrew Forrest’s biotech fund Tenmile and the likes of SG Hiscock making up big chunks of the $25 million raise.

We have an upcoming investor briefing with a security and surveillance tech company with the only surveillance solution that can sense, think and act – without needing people, data cables or power cords. Spectur Limited (ASX: SP3) is used by institutions such as Optus, Surf Life Saving and the Department of Defence and recently delivered its highest revenue quarter on record.

Tomorrow, Thursday 2nd February at 11am (AEDT), we will be joined by Managing Director Dr Gerard Dyson who will provide an update on Spectur’s record FY23 Q2 results and how their pending acquisition of 3 Crowns Technologies can deepen their competitive edge and accelerate Spectur’s strategy. Click here to attend or request the replay.

Reach Corporate provides Corporate Advisory Services, including managing investor communications on behalf of Spectur Limited and may receive fees for its services.

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