News & Analysis

Weekly Summary – “Mid-Cycle Adjustment”

August 23, 2019

By Deepta Bolaky

Weekly Summary

The primary focus was the Jackson Hole Symposium this week. August is shaping up to be the worst month of 2019 for the markets as several bearish factors have gripped risk sentiment. We saw erratic movement in the equity markets ranging between 1% to 3%.

FOMC Minutes

The minutes ahead of the symposium was a non-event as it was considered outdated. A lot has happened in the two-week gap, and there were growing expectations that the “mid-cycle adjustment” could be revisited amid the uncertainties in the market.

However, market participants took note of the members’ debate of a more significant rate cut and look forward to Jerome Powell’s annual speech at Jackson Hole to have more clues on the Fed’s next move. 

“A couple of participants indicated that they would have preferred a 50-basis point cut in the federal funds rate at this meeting rather than a 25-basis point reduction. They favoured a stronger action to better address the stubbornly low inflation rates of the past several years, recognizing that the apparent low sensitivity of inflation to levels of resource utilization meant that a notably stronger real economy might be required to speed the return of inflation to the Committee’s inflation objective.”

Big Earnings Week for Australia

It was a busy week with more than 60 companies releasing their earnings reports and providing guidance for the second half of the year.

  • McMillan Shakespeare rose more than 15% after it has released its FY19 results. The company’s net profit increased by 27% to $63.7million and deliver a fully franked dividend of 74.0 cents per share, a 1.4% increase on the prior year. Its share price is 31% higher at $16.04 since Monday.
  • Wisetech Global is currently up by 36% for the week so far. The company’s market cap jumps by $1 billion in a day. The company experienced a significant revenue growth with a 57% rise at $348.3m for the FY19.
  • Pilbara Minerals, the lithium miner is currently the worst-performing stock and fell by 8% on full-year numbers. The consolidated net loss for the year ended 30 June 2019 was $28.9 million (2018 loss $19.4 million). Its share price lost 17% in the last five days to trade at $0.39.
  • St Barbara Limited has posted a 36% drop in net profit after tax due to constraints at its flagship Gwalia gold operation in Western Australia. The Gold miner erased 15% so far this week.

Jackson Hole Symposium

Market participants await the much-anticipated highlight from the Federal Reserve. Jerome Powell will have a tough job in striking the right balance in communicating its rate cut expectations and clues on how to restore the global economic balance given the current monetary challenges.

The symposium will likely not be the platform where the Fed will announce a change in policy or elaborate on the next rate move, but it could provide clues how the Fed are pricing or reassessing the latest risks in the markets which may offer more clarity on future rate cuts.

Bond Market 

We saw the bond rally that took global yields to new lows. Markets have been whipsawed over recession fears, the path of interest rates, geopolitics and trade tensions. Treasuries had another wild day on Thursday ahead of Jerome Powell’s speech at the symposium.

We could potentially see more turbulence this Friday as investors eyed Jerome Powell Speech. 

Monday, 26 August 2019
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