Local and global equity markets lifted this week supported by better investor confidence and mixed US inflation and labour market data which may have reduced some pressure on the US central bank’s next move.
In local stock news, Qantas is making a huge bet on a rebound in travel demand with plans to buy more than 100 new planes worth in excess of $9 billion as it proceeds with ultra-long flights.
Casino group Star Entertainment has denied claims it unwittingly allowed money laundering and fraud, in response to media reports. Star said the reports were misleading. Shares fell sharply on the news.
General insurers claim they may benefit from a court decision on whether they must pay businesses’ claims of losses due to the pandemic. The Federal Court gave judgement on a second test case. IAG said the court found in favour of insurers on some questions and customers on others.
CSL revealed that it is starting to collect more plasma for its therapies despite the pandemic, with more US donors giving blood due to higher fees and less virus restrictions. The company confirmed its full year earnings forecast.
Telstra reaffirmed a return to growth in 2021/2022 with the company having slashed costs by $2.3 billion and with the CEO confirming they were on track to reach its target of a $2.7 billion reduction in costs.
The Aussie dollar pushed higher this week with currency investors ignoring China / Evergrande risks and instead focusing on the bullish case for commodities in the period ahead.
Australian employment declined by 138,000 in September, larger than consensus estimates, following a 146,300 fall in August. The unemployment rate inched higher to 4.6% as the participation rate fell. Hours worked surprised on the up, increasing by 0.9% in September.
Australian business confidence has surged on the hope that the path out of lockdowns will allow economic activity to rebound. A key business survey for September showed confidence spiking to well above its long-run average. Business conditions fell.
The number of dwelling commencements in Australia jumped by 23.2% in the 2nd quarter of 2021, with commencements of new houses up 13.7% whilst new units were up 47.5%. The big lift in commencements shows strong residential construction work ahead but the 3rd quarter is likely to be soft given NSW and VIC lockdowns.
Australian consumer sentiment decreased by 1.5% in October with the noting of a sharp contrast in sentiment readings based on vaccination intention, ie. a large gap in confidence between those intending to be vaccinated and those that do not. There is an expectation that sentiment will rise strongly with faster re-opening. There were greatly reduced fears of job losses in the report whilst the time to buy a dwelling index fell sharply.
The annual inflation rate in the US edged up to a 13 year high of 5.4% in September from 5.3% in August, coming in above market expectations. The main pressure came from the cost of shelter, food, and new vehicles. On a monthly basis, consumer prices advanced 0.4%.
The much-anticipated US jobs report disappointed from an economic perspective showing a meagre 194,000 jobs were added in September, the lowest so far this year, and well below forecasts of 500,000. Employment declined sharply in public education and in healthcare. US job openings also dropped to 10.4 million, missing forecasts of 10.9 million.
The US central bank says it could begin a gradual tapering process (ie. reduction in money printing) as soon as mid-November, according to their September meeting minutes. The notes indicated the tapering could see a monthly reduction of US$10 billion in government bond and US$5 billion in mortgage purchases, in the first indication of what their plans may look like. They have been printing US$120 billion per month since covid began.
Goldman Sachs has cut it’s US economic growth forecast for 2021 and 2022 to 5.6% and 4% respectively, citing an expected decline in fiscal support through the end of next year and a more delayed recovery in consumer spending than previously expected. Previous expectations were for 5.7% and 4.4% in 2021 and 2022. The IMF also reduced their forecasts for global growth for this year and next.
Bank of England officials gave further hints that an increase in interest rates may be coming to tackle inflation, with Governor Bailey warning of a very damaging period of inflation unless policy makers take action. Markets are currently pricing in the first move by the end of this year.
Chinese inflation figures showed annual factory gate prices rose the most since records began in 1996, with soaring material prices putting more pressure on businesses struggling with energy curbs and supply bottlenecks.
136 countries have agreed to set a minimum global tax rate of 15% for big companies and sought to make it harder for them to avoid taxation. None of this has been ratified by law yet. The US in particular may find it hard to enact such an agreement given treaties require a two-thirds majority in the Senate which is currently evenly split.
Australia needs a post-World War II style immigration surge over the next 5 years, according to advice given to the NSW government, as a key means of economic recovery and post-pandemic growth in order to fight labour shortages. Worth remembering that Australia took in 180,000-250,000 immigrants annually pre-Covid which greatly assisted our economic growth story over many decades.
The US Democrat-controlled House of Reps gave final approval to legislation temporarily raising the government’s borrowing limit to US$28.9 trillion, pushing off the deadline for debt default only until December. The vote in the House was along party lines.
Weekly market updates are written by Chris Lioutas. Chris is on the board of Peer Wealth X Futuro Investment Committee. View LinkedIn
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