- Local and global equity markets largely trended higher over the week, buoyed by strong company earnings results and slightly more dovish central bank sentiment.
- Results for US corporate quarterly reporting season have been much stronger than expected at the half-way mark, with 92% managing to meet or beat earnings estimates while 86% have done so on the revenue side, making it the highest beat ratios since 1st quarter 2008.
- In local stock news, National Australia Bank announced it will buy-back $2.5 billion in shares. The buy-back will happen in August and follows ANZ declaring a similar move earlier this month. Banks awash with capital following wealth management sales and provisioning for bad debts which never eventuated as the government and central bank saved everyone.
- Ryan Stocks has become the chairman of Boral after Seven Group gained almost 70% of the company through its takeover efforts. Seven has also installed its CFO as a director, whilst the previous Boral chair has retired and 2 other board members will retire after the AGM.
- US digital payments giant Square Inc has agreed to acquire Afterpay in a deal worth $39 billion, or $126.21 per share. The all-stock deal will see Afterpay integrated into the existing Square ecosystems worldwide. Afterpay’s board has unanimously recommended the deal to shareholders. Afterpay shareholders are expected to own 18.5% of Square once the deal is enacted.
- Oil Search’s board has endorsed Santos’ offer of $4.52 a share, which will make the combined company one of the 20 largest oil and gas providers in the world.
- The oil price trended lower this week as concerns arose regarding the pace of the global economic recovery in light of increasing virus restrictions in some countries.
- The Reserve Bank of Australia has unsurprisingly kept the cash rate at 0.1% at their August meeting. Given current lockdowns across the eastern states, any rhetoric about the bank moving earlier than expected to remove stimulus has now gone.
- Concerns continue to mount regarding the economic recovery given the continued length of the Sydney lockdown (including army deployment), with Melbourne and parts of Brisbane also now under lockdown. 3rd quarter economic growth will be negative and 4th quarter isn’t looking too good at this stage, which might see the economy dip back into recession.
- Australian credit rose by a solid 0.9% in June, boosted by a 1.6% business credit, likely the result of businesses drawing down credit facilities to survive the lockdowns. Housing credit also posted a strong lift for the month with both owner occupier and investor credit rising. Personal credit fell, hardly surprising given concerns regarding the length of lockdown.
- Australian dwelling prices rose by a solid 1.6% across the 8 capital cities in July, with annual growth sitting at 15%. Price rises in July were particularly strong in Sydney, Brisbane, and Canberra. Regional prices increased by 1.7% in the month. The monthly rate of growth peaked in March this year at 2.8%, and has since trended lower, but the pace of growth remains strong.
- Residential building approvals in Australia fell by 6.7% in June, driven by a large drop in approvals for houses as growth settles at a lower rate post the HomeBuilder scheme finishing. New lending for housing fell by 1.6% in June, with lending to first home buyers driving the fall whilst lending to investors rose.
- Plenty of rhetoric from US central bank members this week pointing to internal differences of opinion but not so far apart as to cause any major issues for chair Jerome Powell on the communication front. A couple of prominent members waxing lyrical about the economy being strong enough to see a reduction in money printing from 2022 and potential rate rises in 2023.
- US private payrolls data increased by a significantly less than expected 330,000 in July, versus expectations for more than 690,000.
- Price increases are starting to hit home in Europe with Germany’s inflation rate jumping to the highest level since 2008. Likely temporary given both the demand (government stimulus, restricted travel) and supply shocks (restricted work practices, border restrictions on labour, commodity price increases), but the data will fuel debate about whether policy makers need to start removing stimulus faster than anticipated. Highly unlikely at this stage, but worth monitoring.
- The Chinese government has pledged more effective fiscal support for their economy and tighter supervision of overseas share listings as policy makers highlighted economic risks in the 2nd half of this year. The US securities regulator has also increased disclosure requirements for IPOs of Chinese companies.
- US President Biden and his administration will likely ramp up already very high levels of government stimulus as the US economic recovery begins to stall, with $10 trillion of new spending/investment planned. 10 million Americans remained unemployed with new obstacles emerging as some states reconsider mask mandates and other restrictions, all whilst many of the emergency stimulus programs from 2020 come to an end. The political cycle is clearly front and centre as the Biden administration looks to buy its way to a stronger rebound in light of the all-important US mid-terms next year.
- A Hong Kong court sentenced the first person convicted under a national security law imposed by Beijing to 9 years in prison. Doesn’t bode well for dozens of pro-democracy activists awaiting similar trials.
- China’s government has quietly issued new procurement guidelines in May that require up to 100% of local content on hundreds of items, erecting fresh barriers for foreign suppliers, according to a number of sources. The government has not responded to queries on the document. The edict flies in the face of their admission to the WTO and their phase 1 trade deal with the USA. Hardly surprising.
- YouTube suspended Sky News Australia from uploading content onto its website for a week under its “strikes” system. The Alphabet (Google) owned company said that the media company had breached its Covid-19 misinformation standards. Sky News Australia vehemently denies the allegations. In any case, a stain on censorship in Australia’s history.
- A growing number of Australian government MPs are pushing back against the use of vaccine certificates for domestic travel and attendance at venues and events. It came after news the government had agreed on a passport system for international travel, but was facing internal unrest when it comes to domestic use.
Chris Lioutas, Director, Insight Investment Consultants
Chris holds the position of asset consultant for Maxim Advisors and is a current sitting member of Maxim's investment committee.
With permission of the author, this article is presented by Maxim Private Clients Pty Ltd ASFL No. 511972
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