Markets
Local and global equity markets were a little jittery this week as investors digested news regarding China’s 2nd largest property developer, Evergrande, potentially going under.
In local stock news, iron ore miners have been hard hit as the iron ore price continued to fall in light of waning Chinese demand. Chinese steel mills are easing steelmaking following a government demand to curb pollution. The question is now whether this is a temporary or permanent state of play.
Transurban and their JV partners are paying $11 billion for the NSW government’s 49% stake in Sydney toll road WestConnex. Transurban will raise new equity at $13 per share to fund their share of the purchase.
Canada’s Brookfield Asset Management and Australia’s APA Group are fighting it out to takeover electricity operator AusNet. Brookfield had improved their all-cash offer to $2.50 a share whilst APA has since offered $2.60 per share in a mix of cash and shares deal.
The oil price rose this week as US supplies continue to dwindle whilst oil production in the Gulf of Mexico hasn’t returned to full production levels in the aftermath of hurricane Ida. Oil demand continues to rise in line with the broader economic recovery globally.
Economic
Payroll jobs fell by 1.3% nationally over the fortnight to 28 August with NSW, VIC, and the ACT seeing the largest falls. Appears to be minimal spill over to other states. The largest quarterly employment losses have been in hospitality and leisure whilst manufacturing has seen a large gain.
In a further blow to Victoria’s building industry, the Victorian government has shutdown the industry for 2 weeks following recent protests by tradies. The shutdown is projected to cost the state economy $1 billion per week, in addition to other non-monetary costs.
Household spending intentions in August showed that intentions had risen relative to the same month last year, but the pace of improvement has continued to decline from the jump in 1st half 2021. All categories remained weak, with travel, entertainment, and education spending intentions continuing to fall.
The Reserve Bank of Australia’s September board minutes stuck to the script and reiterated their position that the current health policy path has delayed, not derailed, the recovery with an expectation that the economy returns to its pre-Delta path by mid-2022. The bank’s updated economic forecasts will be one to watch.
New lending for housing eased in August with housing activity dampened by the lockdowns. The share of fixed rate lending remains high, but below recent peaks, whilst lending for renovations continued to grow at a solid pace. Lending to businesses has lifted over recent months as businesses draw down on existing facilities to support cash flow through lockdowns.
The US central bank signalled that it could begin to reduce its bond purchases soon and raise interest rates as early as next year, with the committee evenly split between hawks and doves. Rate rises are still a way off, early next year is highly unlikely, but the comments do show a significant shift in thinking. Its now likely they begin tapering their bond buying (money printing) program before the year is out with the process concluding in the 2nd half of 2022.
The Chinese central bank pumped $25.4 billion into the bank system in order to calm market jitters in light of concerns regarding Evergrande’s debt issues.
Politics
US house Democrats have drafted a package of tax proposals which falls short of President Biden’s ambitions, given he needs to raise US$3-3.5 trillion to fund his latest spending program in light of the US government pushing close to their self-imposed debt ceiling. The latest draft lowers the proposed corporate tax increase to 26.5% (up from 21%) and capital gains tax to 25%, in an attempt to keep Democrat party moderates on board.
The Chinese government continued to plough through sectors of their economy, in an effort to “align” corporate and social behaviours to their future plans, with casino mecca Macau coming under scrutiny. Macau authorities indicated they would seek to tighten regulation of gaming in the territory. In other news, the Chinese government clarified they would seek to “slow-down” rather than suspend approvals of new video games, but in the same breath looks likely to break up Ant Group’s (Alibaba’s payments business) Alipay business in order to curb tech monopolies to ensure growth.
Australia, the US, and the UK have announced a new security partnership which aims to deepen cooperation on nuclear submarines, cyber security, artificial intelligence, and more, with many seeing the partnership as a way of countering China. As part of the deal, the Australian government has abandoned its submarine deal with the French and the French aren’t happy.
Weekly market updates are written by Chris Lioutas. Chris is on the board of Peer Wealth X Futuro Investment Committee. View LinkedIn
Disclaimer: The material and contents provided in this article contains general information and does not take into account your personal objectives, financial situation or needs. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, please contact Peer Wealth on (02) 8014 7608.
