Jarden Brief: US trade deficit widens as weakness abroad stifles appetite for American products

A container terminal at the Port of Los Angeles. Foreign demand for US goods and services remained weak on the back of global players being at limits with rising interest rates and inflation. Photo / Stella Kalinina, The New York Times

Keeping you up to date with the latest market moves, in association with Investment firm Jarden.

International

US

Markets showed a modest fall with the Dow Jones and Nasdaq decreasing 0.1 and 0.5 per cent respectively.

The trade deficit in the United States widened in October for a second month as value of exports declined over imports increasing, seeing it expand 5.4 per cent over September.

Median estimates in the Bloomberg survey of economists had expected the deficit to widen as much as US$80 billion, compared to the US$78 billion deficit seen in October.

Foreign demand for US goods and services remained weak on the back of global players being at limits with rising interest rates and inflation.

Despite a strong US dollar making goods more expensive for offshore customers, travel exports and imports increased respectively.

Against the broader uncertainty, a variety of American equities have seen a rise as a result of stronger-than-expected quarterly results.

Building Company Toll Brothers rose 6.3 per cent today, seeing an increase in sales of 21 per cent over the last year’s quarter to US$3.6 billion which contributed to a profit before tax figure of US$841 million, with margins expanding to 26.9 per cent.

For the fiscal year ending October 2023, management forecast deliveries of between 8,000 and 9,000 units, of which 20 per cent should come in the first quarter, suggesting strong demand for themselves despite the consensus weakness expected for the broader American housing market.

Airline company Southwest Airlines has announced its intention to reinstate its quarterly dividend which had been suspended since the start of Covid-19.

Management reiterated fourth quarter revenue to be up 17.0 per cent over 2019 levels, signaling a recovery for travel demand.

A US$0.18 per share dividend has been announced and will be paid out to investors on 31 January.

Management expects capacity for 2023 to grow by 15 per cent compared to 2022, along with taking delivery of 100 new planes next year that will contribute to a capital expenditure in the range of US$4 to US$4.5 billion. The share price fell by 5 per cent.

Rest of World

European multinational pharmaceutical companies Sanofi, Haleon and GSK have seen a share price rise of 7.0, 3.6 and 8.2 per cent respectively, after a legal case claiming Zantac, a heartburn medication, caused cancer.

US district Judge Robin Rosenberg said the almost 2,500 lawsuits filed had been based on flawed science.

She said no scientists outside of the litigation were supporting or claiming Zantac caused cancer.

Tens of billions of US dollars of personal injury awards have been avoided. In early August, Sanofi lost 30 billion pounds of value as UBS flagged a “potential overhang” to the share price.

Chinese and Hong Kong shares have slipped with the release of Chinese Trade Data for the month ending November, with the Hang Seng Index and Shanghai Composite falling 0.4 and 3.2 per cent respectively.

Export value fell almost 9 per cent compared to the year prior, a contraction not seen since the first Covid-19 lockdown in February 2020.

Weakness was further observed in imports declining 10.6 per cent, where strength is usually seen during the key month ahead of holiday and Christmas periods offshore.

Specialists at Maritime Strategies International Limited estimate this pressure will continue into the first quarter of 2023, as the Lunar New Year holiday period will see a most Chinese companies shut for weeks.

Commodities

The oil price fell 1.6 per cent to its lowest price this year with easing fears that the price cap on Russian crude could cause a supply shock.

The Kremlin has said it is still working on its response to this price cap. Russian newspaper Vedomosti reported officials were considering banning oil sales to some countries, and capping discounts where appropriate.

Natural gas prices have taken an opposite turn, seeing a rise in benchmark futures as large as 3.0 per cent, as the US and UK agree to an “energy partnership” that aims to reduce the reliance on Russia.

This aims to double the amount of natural gas sent by the US to the UK in 2023 compared to 2021.

Australia

The Australian Bureau of Statistics released the national account for the three months ending September, showing slower-than-expected growth of 0.6 per cent over the previous quarter and 5.9 per cent over the same quarter in 2021.

Bloomberg economic polls had estimated 0.7 and 6.3 per cent respectively.

Household savings fell to 6.9 per cent from 8.3 per cent the previous quarter as household consumption climbed 1.1 per cent over the same period.

Governor Philip Lowe expressed confidence in delivering a soft landing in the wake of the sharpest annual tightening seen by the Reserve Bank of Australia since 1989.

The central bank forecasts Gross Domestic Product growth slowing to 2.9 per cent at the end of this year, then to 1.4 per cent in 2023 and 2024 as borrowing costs ramp up.

Energy company Santos announced a further US$350 million share buyback and released details for a simplified capital management framework.

Investors expected this announcement back in October at its annual investor briefing, in addition to the existing US$350 million share buyback put in place in August.

The company will aim to pay out at least 40 per cent of free cash flow from operations excluding major growth and pay this out to shareholders only through cash dividends and/or share buybacks.

An increase of shareholder returns to at least 50 per cent is intended on commencement of the Barossa and Pikka Phase 1 production, anticipated in 2026.

Any net proceeds derived from asset divestments through portfolio optimisation will also be considered in providing shareholders cash returns.

A target gearing range of 15 to 25 per cent was unchanged.

New Zealand

Gambling and entertainment company SkyCity Group has announced the Australian Transaction Reports and Analysis Centre started civil penalty proceedings against its operations in Adelaide.

The regulator alleged contraventions under the Anti-money Laundering and Counter Terrorism Financing Act 2006.

Should the Federal Court accept in whole or in part the claim made, SkyCity Adelaide may be subject to a civil penalty to be imposed. The level of the penalty sought has not yet been identified. The share price went down 1.1 per cent on market close.

Coming up today

Retirement operator Summerset is set to have its investor day and ANZ’s Truckometer will be released for November, which tracks traffic activity across New Zealand.

The Australian Bureau of Statistics will publish numerous releases for the month of October, most notably Australia’s international trade balance for goods and services, weekly payroll jobs and wages, tourism accounts and industrial disputes.

For more information on the latest market moves, get in touch with Jarden.

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All market pricing and announcements are sourced from Refinitiv, NZX and ASX.