Mixed week for equity markets with weakness locally, strength in the US, mixed results across Europe and weaker Asian and emerging markets.
In local stock news, property group Mirvac said momentum in residential sales show no signs of slowing with market conditions expected to remain favourable helped by lower interest rates. Commercial leasing was less buoyant with the company conceding that working from home would remain part of the economy.
Commonwealth Bank reported cash profits up 20% to $2.2 billion for the September quarter, but the bigger news was compression in the closely watched net interest margin which they said was considerably lower through the quarter. Low borrowing rates and strong competition not helping. Shares fell sharply on the day, leading the other major banks lower.
Online job advertiser Seek’s full year earnings were on course to be in the upper part of its forecasts. However, the company indicated that plenty of investment will be needed in the next 5 years to meet its goals.
Treasury Wine Estates will buy a US California-based vineyards company for about $433 million. Treasury has recently sold some US brands for $300 million as it targets the luxury end of the US wine market.
The Aussie dollar fell down into the US72c range as the US dollar saw additional strength especially on a weakening Euro. The Reserve Bank of Australia’s dovish comments on rates also didn’t help the Aussie dollar.
Reserve Bank of Australia boss Philip Lowe stated that they are trying to get interest rates up over time and that people borrowing today need to remember that. However, he ruled out a rate rise in 2022 and said that they were making good progress towards its goal of inflation of 2-3%.
Australian wages rose by 0.6% in the 3rd quarter resulting in the annual rate lifting to 2.2%, with growth in private sector wages outpacing the public sector. The leading indicators of labour demand are strong. Wages are rising, but at this stage aren’t sufficient enough (ie. need to be 3% or more) to put sustained upward pressure on inflation.
The Australian banking regulator has warned lenders that it could soon move to tighten borrowing conditions even further in order to stifle and mitigate growing risks. The regulator says lenders may soon see limits placed on loans to borrowers with high debt-to-income ratios and other high-risk loans. The regulator doing some heavy lifting to ease pressure on the RBA.
The Australian competition regulator has released a warning that supply chain disruptions would likely force businesses to pass on costs to consumers. Most retailers are working hard to absorb these costs in the short-term, but the longer these cost pressures persist the harder it will be. Bigger companies will get bigger whilst small companies get smaller or go out of business.
The US economy has more than 10 million open jobs since June with more than 7.4 million people still unemployed. Incredible numbers. The “quits” rate (ie. how many people are quitting their job to usually look for better opportunity or higher pay) was 3% in September, a record high, which shows employees taking full advantage of the current labour shortages.
US retail sales rose 1.7% in October suggesting consumers weren’t put off by rising inflation. However, inflation is growing at a significantly faster pace than retail sales and wages meaning both have been falling in real terms (net of inflation).
UK inflation for October surged to the highest in a decade, 4.2% vs 3.9% forecast, putting further pressure on the Bank of England to raise interest rates. Their last meeting saw a 7-2 vote against raising rates. Producer prices are also the highest in more than 10 years.
Chinese factory output and retail sales grew more quickly than expected in October, following a poor recent run in both sets of data.
Japan’s economy shrank more than expected last quarter as shoppers stayed home and factories pared production, ramping up expectations for the new PM’s stimulus package.
PM Scott Morrison is resisting calls by businesses and recommendations by organisations to boost our immigration intake, which has been near zero for the last 2 years versus the roughly 200,000 net migration per annum pre-covid. Likely we will need to play catchup on the last couple of years if we want labour shortages to clear and economic growth to recover to a sustainable level in future years. Morrison is heeding calls for more migration ahead of the federal election next year. Good for his re-election chances, bad for the economy.
The US is warning European Union allies that Russia may be planning to invade Ukraine as tensions flare over migrants and energy supplies. The US government is closely monitoring a build-up of Russian forces near the Ukrainian border. Russia says military deployments on its territory are an internal matter and denies any aggressive intentions. Technically right, but the Russians do have good form on encroaching. Opportune time for Putin given gas shortages across Europe whilst Russia is their main supplier.
China will likely oppose global pressure to phase out the use of coal because of energy security concerns, especially now the country is in the grips of energy shortages whilst ramping up coal output to record levels. Expect nuclear to play a key part of their energy mix going forward, along with coal and natural gas in the short to medium term. The Chinese and the Indian’s were largely responsible for the watering down of the agreement from the most recent climate conference, from phasing “out” coal to phasing “down” coal, on the basis that developing countries were entitled to the responsible use of fossil fuels. Very true.
Chinese leader Xi scored a major victory in the path towards indefinite rule. The leadership’s communique calls for China to unite around the party with Xi at the centre. It also promoted their belief of Hong Kong’s move from chaos to governance……and reiterated Xi’s position on Taiwan (ie. being part of China soon enough).
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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