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Buffett splashes out as Elon joins Twitter: What we learned this week

Lewis Jackson  |  08 Apr 2022Text size  Decrease  Increase  |  
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RBA turns its crystal ball to house prices

The Reserve Bank’s house price model spells bad news for homeowners should rates rise. A 2% jump in the cash rate could see house prices fall more than 15% over two years versus a scenario where rates are steady, said the bank in its bi-annual Financial Stability Review released on Friday. The central bank also noted three-quarters of fixed rate loans expire by the end of 2023. When that happens, just over a third of owner occupiers could see payments jump by more than 20%.

Oil markets do drivers a favour

Motorists could see more petrol price relief soon as global oil markets retrace gains notched in the chaotic days after Russia’s invasion of Ukraine. Oil prices are slipping as the US and its allies release 240 million barrels of oil from emergency stockpiles. Traders are also factoring in falling demand as China maintains lockdowns in its battle against the latest covid outbreak. Brent Crude closed at US$100.87 on Thursday, down from levels above US$130 in early March. Changes in international prices take roughly two weeks to filter through to local pumps.

Buffett buys some printers

The world’s greatest value investor has found another bargain. Buffett’s Berkshire Hathaway revealed on Thursday it had bought about 121 million shares in US computer and printer maker HP Inc. Worth roughly US$4.2 billion at Wednesday’s close, news of the purchase sent HP shares soaring 14.7%, netting the Oracle a paper gain of $600 million. After saying in February that there was “little that excites” in markets, Buffett has had a change of heart. Last month he spent US$11.6 billion buying insurer Alleghany Corp and another US$6.4 billion accumulating stock in Occidental Petroleum.

All eyes on June

The big four banks are agreed: rates are set to rise in June. This week, Westpac and NAB brought forward their forecasts for Australia’s first hike since 2010 from August to June. The updates follow Tuesday’s Reserve Bank meeting, where the bank omitted its customary “prepared to be patient” mantra, a sign widely interpreted as a step towards a cash rate hike. Westpac sees rates hitting 1.25% in December, versus 1% for NAB.

Elon Musk splashes out on Twitter

One of Twitter’s biggest users now has a seat on the social media company’s board. Elon Musk revealed a 9.2% position in Twitter on Monday, making him the largest shareholder with more four times the stake of co-founder Jack Dorsey. Since then, he has tweeted a poll asking followers if they would like an edit button (overwhelmingly yes) and shared a photo of himself smoking marijuana under the caption “Twitter’s next board meeting is gonna be lit”. Morningstar analysts left fair value on hold while noting the purchase could “affect Twitter’s long-term strategy”. Quite.

Rio Tinto gets more than its share

As Russian sanctions grind into gear around the world, Rio Tinto looks set for an unexpected windfall. Output from the Queensland Alumina refinery, one of the world’s largest, is normally shared between joint owners Rio Tinto and Russian aluminium company Rusal. Following sanctions on Rusal, Rio Tinto has taken control of operations and output “until further notice.”

Bond holders become bag holders

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First, years of negative yields and now the worst quarter’s performance in decades. Bond holders got no respite this week as traders continued to dump debt around the world following hawkish noises from central bankers. Bloomberg’s Global Aggregate index fell 1% this week, for an 8% decline year to date. Selling pushed yields on Australian 10-year bonds above 3%, the highest level since 2015, when Tony Abbott was Prime Minister.

Interest rate jitters shake ASX: Market recap

Australian shares ended the week slightly lower as investors digested a raft of bearish updates from central banks and markets.

The S&P/ASX 200 rose early in the week before losses on Wednesday and Thursday left the benchmark 0.2% lower. Consumer discretionary stocks led losses, down 2.9% in line with weakness at Wesfarmers. Technology followed closely, with the sector index falling 2.6% as it tracked sharp declines in the US Nasdaq Composite.

“Macro is still the big story this week,” says Aaron Binsted, a portfolio manager at Lazard Asset Management. He notes hawkish noises from key US Federal Reserve officials, repositioning for higher rates at the Reserve Bank, economic warning signs from bond markets, where a key part of the yield curve briefly inverted, and softening forecasts for growth and corporate earnings across the developed world and China.

Energy stocks gained on the ASX, led by Whitehaven Coal and New Hope, up 6.2% and 10.3%, respectively as European leaders weighed a ban on Russian coal. The sector rose 1.7%.

“It takes a long time to build a new coal mine, people are now saying maybe these prices might be around for a while,” says Binsted.

Elsewhere, Graincorp posted another profit upgrade for the year amid record wheat prices. Shares rose 5.2% this week.

Other moves this week

  • Magellan Financial Group ↑ 4.1%
  • Telstra ↑ 2.0%
  • AGL ↑ 7.6%
  • Woolworths ↑ 2.0% / Coles ↑ 1.4%
  • Rio Tinto ↓ 2.6% / BHP ↓ 1.9% / Fortescue metals ↑ 1.9%
  • NAB ↑ 0.4% / Westpac ↑ 0.4% / CBA ↑ 0.6% / ANZ ↑ 0.95%

The week ahead

  • Wednesday: Westpac consumer confidence index. Watch for signs shoppers are growing fearful.
  • Thursday: Unemployment figures for March. Watch to see if unemployment falls below 4% for the first time since the 1970s.
  • Friday: Minerals Resources (ASX: MIN) quarterly report.

Reading and listening for the weekend

Two centuries of Australian commodity exports; Is there a future for European equities (yes)/(no); The end of the US dollar?; Is sports ability heritable? Nuclear is back in Britain; Australia and India sign historic trade deal; Under the hood of your popular ETFs

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

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