The ASX took a dip today with the S&P/ASX200 dropping 7.20 points to 7,741.80. Over the last five days, the index has gained 1.48% and is currently 2.13% off of its 52-week high.
The bottom-performing stocks in this index are Fletcher Building Ltd and De Grey Mining Ltd, down 10.25% and 5.08% respectively.
Looking at the sectors, Energy was the main drag down 0.85%. There were modest gains in Consumer Discretionary, Consumer Staples and Health Care of 0.56%, 0.46% and 0.35%.
As for small caps, the S&P/ASX Small Ordinaries was down 0.39% for the day to 3,036.20.
Business conditions ease
Ahead of tomorrow’s federal budget, business conditions have eased.
NAB reports that key indices of trading, profitability and employment returned to their long-run average levels following an economic slowdown.
The NAB Monthly Business Survey for April revealed a 2-point decline in business conditions to 7 index points, while business confidence remained steady at 1 index point. The survey highlighted declines in employment and trading conditions by 2 points each, whereas profitability remained unchanged.
Alan Oster, NAB's chief economist, pointed out that the most significant change observed was in the employment conditions, which had previously been bolstered by strong labour demand.
“The strength we have seen in the labour market has been very impressive, and strong labour demand has been a key driver of this,” Oster said. “The April survey result suggests this may have now normalised somewhat, at least in the business sector.”
“The survey also indicated varying performance across industries, with services sectors such as finance, business and property, transport, and recreation and personal services showing stronger conditions.
"Additionally, the survey noted a 6-point drop in forward orders to 7 index points, though capital expenditure remained steady at 8 index points and capacity utilisation was constant at 83.2%.”
What will the budget bring?
The FY24 budget will be delivered by Treasurer Jim Chalmers tomorrow, with many punters wondering what effect it will have on inflation.
The government will be straddling a fine line between providing cost-of-living relief without inflaming sticky inflation.
So, what is expected from the budget?
According to IG analyst Tony Sycamore, a budget surplus of around $12 billion this financial year. That would be a strong turnaround from its December update of a deficit of $1 billion.
“The fiscal turnaround has been driven by surging tax revenues from high commodity prices, a tight labour market lifting tax payments and reducing welfare payments, and high immigration. The budget is then expected to return to a deficit of $15 billion in the following year,” Sycamore said.
Sycamore says the key initiatives of the budget are the following:
- Tax cuts for all Australian taxpayers from July 1st. These tax cuts have already been legislated and are estimated by some to be the equivalent of around three 25bp interest rate cuts.
- Wiping student debts.
- More funding for Child, Health, and aged care.
- Increased defence spending.
- Increased infrastructure spending.
- Increased spending on housing.
- Power bill and rent relief.
- Measures to promote women's economic security.
- Policies to support key industries as part of Future Made in Australia include producing solar panels, rare earths, and other critical minerals, including nickel.
The wash-up
“Reports in today's media suggest the government expects its cost-of-living relief measures to be announced in the budget, including rent and power bill relief, to help inflation return to the RBA's 2-3% target by Christmas,” Sycamore says.
“We don't necessarily agree with this view as the freeing up of money in one area often emerges elsewhere.
“Ahead of the budget, the rates market is pricing in 4bp of RBA rate hikes by September, which suggests the rates market isn't buying into the Government’s rationale either.”
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