Share markets retrace falls on virus concerns to finish higher

Blog
Friday 23rd July 2021

Share markets retrace falls on virus concerns to finish higher

Blog
Friday 23rd July 2021
Written by Chris Lioutas

Markets:

  • Local and global equity markets had a topsy-turvy week initially falling sharply on virus concerns before retracing those losses to finish the week higher as bad news became good news for markets on the expectation of more government and central bank support. 
  • In local stock news, Rio Tinto reported lower than expected iron ore production and shipments for its 2nd quarter. Heavy rain in WA’s Pilbara region, and coronavirus measures, limited efforts. BHP also reported a dip in quarterly iron ore production.
  • News broke that oil and gas player Santos is pursuing an unsolicited takeover bid for rival player Oil Search. 
  • JB Hi-Fi shares rose strongly, no doubt supported by lockdown, after the company reported preliminary full year results showing sales up 12.6% and a soaring net profit.
  • Lendlease continued to streamline their business selling its service business to Service Stream for $310 million. The property group has recently sold its engineering business and US telecommunications and energy operations.
  • OPEC and its allies struck a deal to inject more oil into the recovering global economy, overcoming an internal split, which resulted in a strong fall in the oil price. The oil price recovered some of the fall after data showed lower than expected US inventories.
  • The Aussie dollar fell further earlier in the week on increasing virus concerns before mounting a small recovery before the week was out.

Economics:

  • The evolving restrictions in NSW and VIC will lead to a sizable contraction in economic growth in the 3rd quarter considering both states combined account for more than 50% of Australia’s economic output. Whilst the government’s fiscal taps have been turned back on, plenty more handouts will be required.
  • Commonwealth Bank lending data shows a slowdown in the pace of growth in new home lending. However, lending to investors continues to accelerate as lending to first home buyers slows. The average loan size remained elevated whilst the share of fixed rate lending is relatively high.
  • The preliminary estimate showed Australian retail trade fell by 1.8% in June coming in well below estimates with the fall heavily affected by lockdowns in several states. Retail spending in July will be substantially weaker.
  • The Australian national goods trade surplus hit a new peak due to demand for iron ore, with an increase in exports for metals, coal, non-monetary gold and gas pushing the surplus to $13.3 billion for June.
  • Data from the US Commerce Department showed retail sales rebounded 0.6% last month as spending shifted back to services as states reopened at a faster pace.
  • The European central bank left interest rates and its program of asset purchases unchanged, as expected, while tweaking its forward guidance on policy to move it in line with its newly adopted inflation target where they’d like to see inflation consistently at 2% before moving on interest rates.
  • Banks in China kept the benchmark loan rate steady indicating that the central bank is continuing to keep policy stable despite the recent move to add liquidity to the financial system.

Politics:

  • On the virus/vaccine front, increased and longer restrictions look likely for NSW and other parts of Australia as case numbers rise and the vaccine drive continues, whilst ICU admissions and deaths remain low. Case numbers in the UK, USA, France and Israel continue to rise, particularly troubling authorities in the UK and Israel where the number of deaths are also rising with already high vaccination rates. In contrast, cases in the USA are rising without the same corresponding increase in deaths. There was an uptick in civil unrest across a range of countries and cities, protesting against lockdowns and vaccine passports.
  • China has pushed back against a World Health Organisation call for another probe into the coronavirus’s origins that include examining whether it leaked from a lab, saying there’s no evidence for the theory……hardly surprising.
  • The Trump administration’s US-China trade deal looks to be under review by the Biden administration after the US Treasury Secretary said the deal failed to address the fundamental problems they have with China.
  • Taiwan will set up its first office in Europe using the name “Taiwan” (who would’ve thought), a decision the US hailed as a way for the island democracy to strengthen its global presence in the face of pressure from China. Lithuania offered to host the office putting themselves in the firing line of the Chinese given their “One China” principle.    
  • Days after the European Union announced ambitious plans to tackle climate change, the French broke ranks lobbying to water them down as President Macron can’t afford to rile voters ahead of the French elections next year. He’s already under tremendous pressure following a recent poor showing in regional elections and the recent imposition of a very unpopular vaccine passport.  


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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