Magellan stumbles (again), cash rate at 2% by December and commodities rally: What we learned this week

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Investors exit Magellan as Douglass returns (sort of)

Magellan’s share price crashed 14% on Monday after announcing funds under management fell 5.2% in May, down to $65 billion. That figure stood at $117 billion last August. Outflows spread to the Australian equities portfolio, which has been a rare area of growth this year. Adding insult to injury, the ASX announced the same day that the fund manager would be booted from the S&P/ASX100 come 20 June. Shares lifted slightly on Thursday after Magellan announced talisman Hamish Douglass would return as a consultant in October.

Elon Musk walks back staff cut threats

The Tesla chief executive sent an email to employees late last week saying that he will be reducing salaried headcount by 10%. Investors panicked at a possible sign production would fall and Tesla shares dropped 9%. The tech billionaire took to Twitter over the weekend to calm nerves, saying “total headcount will increase, but salaried should be fairly flat.”

Kentucky Fried Cabbage?

KFC is suffering from the effects of shortages and inflation just like us. The fast-food chain announced it will use a “lettuce and cabbage blend” in all products that contain lettuce until further notice. Why? A lettuce shortage has sent prices up 300% to $10 a head. Floods on the East coast are decimating lettuce supplies. Zinger lovers will need to be patient as KFC hasn’t said when lettuce supplies will reappear.

Expect a cash rate north of 2% this year

Analysts are rushing to hike cash rate forecasts after the Reserve Bank unveiled some hawkish feathers. Following the RBA’s surprise 0.5% increase—the largest since 2000—HSBC, JPMorgan, Westpac and Commonwealth Bank are now predicting another meaty 50 basis points next month. Commonwealth Bank now expects the cash rate to hit 2.1% in December, up from 1.3% prior to the meeting.

ASX 200 evicts major players in June rebalance

Appen, Platinum Asset Management and Tyro Payments are leaving the S&P/ASX 200 in a reshuffle that reflects the ongoing commodity boom. Three out of four new additions are miners: Core Lithium, Lake Resources and coal digger New Hope. The changes will take effect on 20 June. Appen Platinum Asset Management and Tyro Payments have had a hard time this year with share prices falling 38%, 51% and 69%, respectively since January.

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As they say – out with the old and in with the new.

Global gloom

Global economic watchdogs the OCED and the World Bank are increasingly downbeat about growth. The Mathias Cormann-helmed OECD slashed global growth to 3% in 2022, down from 4.5%. The World Bank is saying 2.9%. Yikes. Both institutions blame fallout from the war in Ukraine for stoking inflation and curbing growth across the world.

Commodity prices rally

A mainstay commodity index hit an all-time high this week driven by a jump in natural gas and wheat prices as traders fretted about supply disruptions from Russia’s invasion of Ukraine. The Bloomberg Commodity Index, which tracks 23 commodities is up 37% this year. Brent crude oil prices also jumped 4.6% this week as easing covid restrictions in China bolstered demand.

ASX has worst week in over two years: Market Recap with AAP

The Australian share market has suffered its worst week in more than two years after another major drop and slumped to its lowest closing level in 14 months.

The benchmark S&P/ASX200 index finished Friday down 87.7 points to 6,932.0, a fall of 1.25%. The ASX200 declined 4.24% for the week, its worst performance since the week ending 24 April 2020, after declining every day except Wednesday. Its close was its lowest since April 7, 2021.

“Quite a pullback, obviously,” said CommSec market analyst Stephen Daghlian.

“To be honest, it’s not overly surprising, given what we saw from the Reserve Bank,” which raised interest rates more aggressively than many were expecting on Tuesday.

The financial sector declined 9.0% for the week, its worst loss since March 2020, the beginning of the pandemic.

All the big banks gave up their morning gains and finished lower on Friday, with the biggest, Commonwealth, close to a one-year low at $93.78. CBA was down 1.2% on the day and 10.7% on the week.

Westpac fell 1.5% to $20.85, ANZ dropped 1.2% to $23.07 and NAB retreated 0.7% to $28.06. National Australia Bank is down 10.3% fall in the past five days.

Property was the worst performer on Friday, down 2.9%. The sector has also suffered its worst week since March 2020 with a 7.0% drop.

Every sector was lower, with energy—the one area that has held up lately—fell 1.6% even as Brent crude hovered around US$122 a barrel. Woodside was down 1.6% and Santos fell 1.5%.

Tiny Bubs Australia was a rare bright spot on the market, gaining 9.2% to 65 cents after advising that the air cargo flight of baby formula chartered by the US government would be purchased by American supermarket giants Krogers and Albertsons. Bubs formula is being imported on an emergency basis to help relieve a major infant food shortage in the US.

Blue chip movers for the week

  • Magellan Financial Group ↓ 17.8%.
  • Telstra ↓ 3.1%.
  • AGL ↓ 0.5%.
  • Supermarkets: Woolworths ↓ 0.9% / Coles ↓ 2%.
  • Resources: Rio Tinto ↓ 0.1% / BHP ↓ 1.6% / Fortescue metals ↓ 0.1%.
  • Big Banks: NAB ↓ 10.3% / Westpac ↓ 13.1% / CBA ↓ 10.9% / ANZ ↓ 7.8%.

Calendar

  • Tuesday: NAB Business confidence survey. Watch for signs business is balking at higher prices.
  • Wednesday:
    • Westpac Consumer Confidence. Watch to see if inflation fears are souring people on the economy.
    • Chinese industrial production for May; important for iron ore demand.
  • Thursday:
    • Local unemployment numbers for May. Watch for the health of the labour market
  • Friday (AEST): US Federal Reserve interest rate decision. Markets expect another 0.5% hike. Watch press conference for hints as to what the Fed will do next.

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