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FIVE at FIVE AU: China in lockdown again, but for how long? What will CPI reading be?

Stock Markets Nov 28, 2022 17:00
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Dan is back for another four years in Victoria. The Aussies won their first World Cup match in 12 years. It’s AFL draft time and the ASX is lower today.

The S&P/ASX200 closed lower Monday, dropping 30.40 points or 0.42% to 7,229.10 after setting a new 100-day high. Over the last five days, the index has gained 1.26% but is down 2.89% for the last year to date.

Bottom-performing stocks in this index were Healius Ltd and Liontown Resources (ASX:LTR) Ltd, down 9.79% and 7.50% respectively.

Looking at the sectors, Energy was the biggest loser down 1.69%, followed by Materials which lost 1.02%. Communications Services was the best performed up 0.73%. Real Estate was the next best performer rising 0.59%.

Three things to watch for the week ahead

Josh Gilbert, market analyst at eToro, shares his three things to watch in Australia next week.

1. Australian Monthly CPI

Australia’s recently introduced monthly CPI reading is released on Wednesday (Nov 30), giving investors another look under the hood of inflation. Last month saw a reading of 7.3%, the highest in decades, but estimates have another hot print of 7.5%, moving closer to the RBA’s peak estimate of 8% by the end of the year.

Unfortunately for the RBA, last week’s unemployment rate and recent higher-than-expected wage growth haven’t helped the bank's inflation headache.

Although inflation is rising, the pressures are coming from high commodity prices on fuel and construction costs, and rising food prices.

These look like short-term price shocks that could reverse in the months ahead, particularly with oil prices already falling by 15% in the last three months.

Australia currently has lower inflation than the United States and most major EU regions. This makes the RBA's task of containing high inflation without triggering a recession less challenging when compared to, say, the US.

A hotter reading would likely point towards another 25bps move in December, but a number lower than 7.5% could see another move lower from the RBA.

2. Retail Sales Data

So far in 2022, the Australian consumer has remained resilient in the face of soaring inflation and rising interest rates but the key question is how long this can continue.

On Monday (Nov 28), retail sales data will be released and is expected to show another month of gains at 0.5%. This would mean a 10th consecutive month of gains as households continue to spend, supporting the RBA’s view that householders are in a solid position to weather higher borrowing costs.

Last month’s reading showed strength from clothing and footwear, up 2%, while eating out was also at the top of Aussies' list, with cafes, restaurants and takeaway services up 1.3%.

Spending patterns are being monitored closely by the RBA to see if their consecutive rate hikes are cooling demand. However, given elevated household savings from the pandemic and growing incomes, the belt-tightening narrative is yet to be shown in spending data.

3. China Zero COVID

Despite COVID being in the rear mirror for most nations, China this week recorded its highest-ever daily case number of 29,754, with major cities entering into lockdowns. But, times could be changing with the government looking to boost its struggling economy with plans to offer financial aid to rescue its property sector.

This week, the state council agreed to a ‘RRR’ cut, which means cutting the amount of cash banks keep in reserve. However, this would likely be a short-term boost and the real hurdle lies in ending its Zero COVID Policy to bolster economic growth once again.

Chinese stocks are some of the worst performing this year, with the CSI 300 down 23% and the Hang Seng down 24.5%. This latest news will likely mean further volatility into next week, but a shift in policy to re-prioritise economic growth could open up opportunities for investors, as these assets are cheap and under-owned given the current risks.

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FIVE at FIVE AU: China in lockdown again, but for how long? What will CPI reading be?

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