Markets:
- Mixed results for equity markets this week with most markets flat or lower (ASX) except for Asian markets where investors have been buoyed by a potentially large US fiscal package.
- The Japanese stock market climbed to its highest point in more than 30 years as investors welcomed positive earnings and expected large amounts of fiscal stimulus particularly in the USA.
- In local stock news, Commonwealth Bank of Australia’s 1st half profit was down 20% versus the same period in 2020. Most of the fall came from lower gains realised on the sale of businesses. The result was slightly below expectations. The retail and business/private banking divisions held up well. The bank reported modest growth in its business lending division, with strong growth in home lending and household deposits. Loan repayments for about 25,000 homes ($9 billion) remained deferred.
- Crown Resorts has been deemed not fit to run its $2.2 billion Sydney casino because it allowed money laundering and has other problems, a report has found. The NSW gaming authority will consider the inquiry’s recommendations and decide what changes Crown must make before gaming could begin. 3 directors have since resigned.
- Macquarie Group’s share price pushed higher after investors took a liking to their 3rd quarter trading update which said its markets and annuity-style businesses were doing better than the previous corresponding period. The company said that full-year earnings were likely to be slightly down.
- Telstra produced a surprise result with investors backing the telco despite 1st half profit slipping by 2.2%, as customers migrated to the NBN and Covid-19 reduced sales. The company provided an upbeat outlook for the period ahead.
- In other company results, building materials supplier Boral reported a relatively weak result whilst general insurer Suncorp reported a reasonable result with cash earnings up almost 40% on the same time last year. Rival insurer IAG swung to a 1st half loss having previously put aside $1.15 billion for possible business claims due to virus lockdowns. Telecommunications provider Vocus Group’s shares rose strongly after the company received a $5.50 takeover bid from Macquarie Infrastructure & Real Assets (MIRA), an arm of Macquarie Group
- The oil price rose to its highest level since December 2019, helped by rising demand as economies re-open and falling supply as OPEC+ countries continue to comply with agreed upon production cuts, particularly from Saudi Arabia.
- The Aussie dollar rose against the US dollar on rising Australian inflation expectations and concerns regarding the delay in US fiscal stimulus.
Economics:
- Australian retail trade fell by 4.1% in December after a 7.1% lift in November. Retail trade volumes lifted by 2.5% in the 4th quarter to be up a very strong 6.4% over 2020. That trend is likely to continue in 2021 given high household savings levels and improving employment conditions. 4th quarter retail trade was strongest in clothing/footwear, department stores, and eating out. Victoria led the states in the quarter.
- The Reserve Bank of Australia has upgraded their central scenario for economic growth this year to 4% and 3.5% in 2022, whilst also materially lowering their profile for the unemployment rate in the near term versus their reasonably dire forecasts last year. The Bank also slightly lifted their inflation forecasts in the near term, likely due to temporary effects, but has retained their forecast of below target core inflation over the medium to longer term (ie. not looking to raise rates).
- Australian consumer sentiment rose by 1.9% in February with the reading sitting comfortably above the level which separates optimism from pessimism. 4 out 5 components of the index rose with the strongest rise coming from a positive outlook for economic conditions over the next 12 months followed by the component linked to the housing market.
- A smaller than expected rebound in the US labour market in January has highlighted the need for more government aid, in the absence of states re-opening their economies and getting kids back to school. US Treasury Secretary Janet Yellen said that if the huge US$1.9 trillion stimulus plan passes, the US could return to full employment next year.
Politics:
- US President Biden and the Democrats in congress are moving ahead with their US$1.9 trillion stimulus plans as lawmakers approved a plan that will allow them to push through the stimulus without Republican support. The most contentious item is the significant lift to minimum wages – it buys Biden and the Democrats political points, but it’s likely to be economically disastrous as it will result in significant job losses.
- The 2nd impeachment attempt of Donald Trump (this time a non-sitting president) began in the US senate this week. Fair to say it’s been circus-like. The likely outcome is a failed impeachment (given the super-majority vote required) whilst wasting taxpayer dollars and wasting time that could be better used to help the economy recover.
- AstraZeneca’s covid-19 vaccine has shown less efficacy against mild disease caused by different strains of the virus. The same results have been found for other vaccines produced, but reductions in efficacy varied. This was to be expected. There are two options on the table – either we accept the lower efficacy like we always have for vaccines for different strains of a known virus or we develop a new version of the vaccine to lift efficacy. The latter approach is likely, but problematic in that there will be delays in development and there will plenty of other new strains that come about. Those different strains, which are supposedly more contagious, were found recently in QLD and WA, but no spread occurred which is unusual.
Author
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
Maxim Private Clients Pty Ltd ABN 47 611 614 398 AFSL No. 511972
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