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Month: November 2020

Investors buoyed by more positive vaccine news

Local and global equity markets moved higher this week buoyed by more positive vaccine news as another vaccine showed positive phase 3 results whilst another provider asked for emergency use authorisation. 

In local stock news, the bank regulator wound back its requirement that the Commonwealth Bank carry an extra $1 billion in risk capital by $500 million. The move comes after the regulator was satisfied the bank had made progress in addressing concerns about governance. 

Bega Cheese raised equity this week to fund their acquisition of Lion Diary & Drinks for $534 million, which will see Bega pick up milk, cream, juice, and yoghurt brands such as Dairy Farmers, Pura, and Yoplait. A little over $400 million of the purchase price will be raised via new equity. 

The oil price rose this week as positive vaccine news pointed to potential increase in demand whilst speculation rose that OPEC may look to make further supply reductions. 
Australian retail trade showed a 1.6% lift in October with the Australian Bureau of Statistics reporting a strong 5.2% uplift in trade in Victoria as restrictions began to subside. Retail trade is up 7.3% compared to a year ago. 

178,800 jobs were added in October according to the Australian Bureau of Statistics, versus market expectations of a 40,000 fall in response to the tapering of JobKeeper payments. The latest employment number has reduced the total jobs lost this year from 917,000 to around 195,000. The unemployment rate did rise to 7% due to a sharp increase in people looking for work. A good set of numbers and hopeful momentum can be maintained. However, next year might be a different story as we transition off JobKeeper and JobSeeker entirely. 

According to new Reserve Bank of Australia modelling, overall employment losses would have been twice as large over the 1st half of the year without JobKeeper, but the scheme only saved the jobs of 20% of the individuals it covered which prevented the termination of at least 700,000 additional workers from April to July. Around 650,000 people did become unemployed during that period. 3.5 million individuals were covered by the program at its peak. 

Australian construction work completed in the 3rd quarter fell by 2.6%, against expectations of a 1.9% decline, with residential completions falling by 1% and non-residential falling by 3.4%. Engineering work fell by 3.3% in the same quarter. Residential completions now sit about 18% below the peak in mid-2018. Residential construction was mixed with a 1.1% rise in new homes but a 6.2% fall in apartments, whilst renovation activity was up 5.1% in the quarter. 

The volume of capital expenditure spending in Australia fell by 3% in the 3rd quarter. Mining and non-mining investment both fell. Spending intentions were largely unchanged from three months ago which would imply a 4.9% fall over the year. Mining investment intentions were downgraded whilst non-mining investment intentions were upgraded. Non-mining investment is now down more than 18% over the past year. 

US Treasury and the US central bank went at it this week after the Treasury sent the bank a list of funds to be repaid, that would allow Congress to re-appropriate US$455 billion that was earmarked for central bank support programs. It makes sense they’ve called the money back in given the emergency levels of March/April have passed and the government needs the money, but it removes a fairly sizable tool from the central bank’s toolkit which means less ammunition and lessens their ability to provide comfort to markets. 

Eurozone business activity contracted sharply in November as new virus restrictions across European countries forced many companies in the regions dominant service industry to close temporarily. Manufacturing activity remained a bright spot as many factories have remained open. Data showed that the German economy grew by a record 8.5% in the 3rd quarter.
On the vaccine front, the AstraZeneca / Oxford University vaccine showed positive phase 3 results, providing a 3rd viable vaccine. The vaccine showed less efficacy (70%) than the Pfizer and Moderna vaccines, but interestingly showed very high efficacy when the 1st dose of the vaccine was halved. Importantly, this vaccine can be stored in normal refrigeration, production can be ramped up quicker, and will cost significantly less than the other 2 vaccines. Pfizer has applied to the US FDA for emergency use authorisation of its vaccine. 

Australian coal worth more than $700 million is being held up at Chinese ports because of “apparent” problems with environmental standards. Odd considering we have some of the cleanest coal in the world. Dozens of bulk carriers have been stuck off the Chinese coast for months due to “safety and quality” inspections aimed at Australian exports. 

The NSW-Victorian border opened this week with flights between the states also resuming, whilst Queensland is set to open its border to NSW residents on 1 December. NSW is now the only state open to people from all states and territories. A reduction in federal funding would likely see all other states open their borders. 

A range of pandemic aid programs in the US are set to expire in the new year, leaving millions of Americans without government support. Considering the jobless rate is still very high in the US and some states have been increasing Covid restrictions, a new set of stimulus can’t come fast enough for many Americans, absent a full opening of the economy (ie. no Covid restrictions). 

The US election result remains undecided whilst legal challenges continue. This week we saw additional legal challenges from people and organisations other than team Trump claiming fraud and that election officials didn’t follow the law, whilst at the same time we saw some state election officials confirm the results of their elections. Joe Biden has begun earmarking people for certain roles giving some insights into what a Biden administration may look like. A department of the US government has released funding to support a potential presidential transition.  

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General Advice Warning

The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

Disclaimer

All statements made on this website are made in good faith and we believe they are accurate and reliable. Macarthur Wealth Management does not give any warranty as to the accuracy, reliability or completeness of information that is contained in this website, except in so far as any liability under statute cannot be excluded. Macarthur Wealth Management, its directors, employees and their representatives do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided on this website is owned by Macarthur Wealth Management. You may not alter or modify this information in any way, including the removal of this copyright notice.

Vaccine news puts a rocket under Value stocks

Local and most global equity markets rose whilst the US equity market looked likely to finish flat for the week, as the positive vaccine news saw investors rotate into more virus and economically exposed companies.
 
In local news, Macquarie Group reported a 32% fall in half year profit due to $447 million in credit and write-down charges due to the impact of the virus. 

Commonwealth Bank announced that its cash profits for the first quarter have fallen 16% on the same time last year but said that growth in its lending divisions was helping to slowly offset the impacts of Covid-19. 

Wesfarmers reported that Bunnings saw a 25% increase in sales in the four months to October than it did for the same period last year. Officeworks sales were up more than 23%, whilst Kmart was up 3% and Target fell 2%. 

Telstra will undergo is biggest restructure in 24 years, splitting its business into 3 entities. Long overdue. The 3 divisions will include their infrastructure assets, mobile towers, and the retail business. 
The Reserve Bank of Australia has upgraded their Australian economic outlook, with their central scenario seeing the economy contract by 4% this year before expanding by 2% in 2021 and 4% in 2022. The Bank has also lowered their unemployment forecasts whilst maintaining their inflation forecasts. 

New figures show the Australian services industry expanding for the first time since November 2019 as government stimulus and improved confidence leads to an increase in sales, new orders, and deliveries. 

The cost of state border closures and lockdowns is becoming clearer with the South Australian government announcing it will spend big to revive its economy, with $4 billion allocated to protect businesses and jobs and the state also hit by a $1.3 billion cut to GST returns, which will likely result in a state budget deficit of $2.6 billion. Northern Territory’s budget revealed a $2.45 billion deficit, with forecasts it will likely take almost 10 years to balance the books. 

Australian consumer sentiment showed another solid rise of 2.6% in November after a strong lift in October. Confidence around current conditions and expected conditions continued to lift. 

A key Australian business survey indicates an improvement in both confidence and conditions in October. Confidence rose stronger than conditions, with confidence levels the highest since May 2019. Trading and profitability conditions have recovered strongly, but forward orders and export sales remain weak. The results also suggest soft employment growth ahead. 

The European Union negotiators reached a deal on the region’s long-term spending plans, moving a step closer to finalising its landmark 1.8 trillion EURO budget stimulus package. If wrapped up now, it will be operational next which will help with the recovery. 

The European Central Bank President has largely confirmed another big stimulus package at its next meeting in December, with a focus on emergency bond purchases and long-term loans. Rate cuts are highly unlikely, considering the rate is already negative and preference to move it back to 0% over time. 

Chinese President Xi Jinping told the Communist Party’s central committee that China’s economy could double in size by 2035, which implies an average annual growth rate between 4.7-5.0%. This is substantially less than in recent decades, but still an incredible growth rate if achieved. 
Drug company Pfizer announced that their phase 3 Covid-19 vaccine result was positive reporting 90% effectiveness (versus 40-70% for the flu vax), which is significantly higher than expected. However, there’s some uncertainty regarding how long it would maintain effectiveness. Frontline workers will likely get the vaccine before the end of the year, with broader availability from Q1 2021. It’s likely that those very young and very old won’t get the vaccine in the first instance due to safety concerns (i.e. broader safety data required). 

The Australian Government has secured two more vaccines, bringing their investment program to $3.2 billion across 4 vaccines, including Pfizer/BioNTech, Novavax, University of Oxford/AstraZeneca, and University of Queensland/CSL. Hedging bets makes plenty of sense at this stage considering the speed at which these vaccines have been produced and considering their importance in light of suppression being the chosen health policy path. 

Virus cases continued to rise across Europe and the US with a subsequent response of increased restrictions on concerns regarding potential hospital capacity. At the same time, death rates haven’t seen a subsequent rise. Given available therapeutics and earlier learnings, hospital overloading shouldn’t become a problem. Protests against restrictions and containment have also broken out across Europe. 

The US election results remain unconfirmed as counting has yet to be completed in many areas whilst President Trump and his lawyers launch legal challenges in no less than 4 states. The state of Georgia, which has Biden leading by a small margin, will soon start recounting votes by hand. There’s roughly another 3-4 weeks for legal challenges to play out. The state of Georgia will also need to re-vote for their Senators given neither senate seat candidates finished with a 50% majority. Voting closes on the 5th January, so we won’t know the make up of the US Senate until then. It’s likely we end up with Republican controlled Senate which largely means status quo for US domestic policy. At this stage, markets appear favourable to that outcome (i.e. the less change, the better). 

The diplomatic spat between Australia and China appears to have gotten worse this week with a blacklist, apparently delivered verbally to commodities traders, including coal, barley, copper, sugar, timber, wine, and lobster. Iron ore and natural gas have not been targeted as these are essential for China’s recovery efforts. 

Brexit risks are rising as the UK and the EU are still are loggerheads with deadlines looming for a trade agreement and formal exit. Without an agreement, a disorderly exit would ensue. UK PM Johnson had vowed to push ahead with a plan to re-write the agreement which would breach international law. However, the upper house of UK parliament has rejected these plans, putting the onus and pressure back on the PM.  

General Advice Warning
The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

Disclaimer
All statements made on this website are made in good faith and we believe they are accurate and reliable. Macarthur Wealth Management does not give any warranty as to the accuracy, reliability or completeness of information that is contained in this website, except in so far as any liability under statute cannot be excluded. Macarthur Wealth Management, its directors, employees and their representatives do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided on this website is owned by Macarthur Wealth Management. You may not alter or modify this information in any way, including the removal of this copyright notice.

Investors unfazed by uncertain US election result

Local and global equity markets rose this week, with investors seemingly comfortable with undecided US election outcome. 

3rd quarter company earnings season moved past the halfway market, with more than 86% of US companies and 74% of European companies topping estimates

In local stock news, ResMed’s first quarter sales were up 10%, supported by ventilator and mask production for Covid-19. Net operating profit increased 27%. Sleep apnoea machines and new patients remain a little soft given lockdowns. 

Westpac reported a 62% fall in full year cash earnings to $2.6 billion for the 12 months to end of September. The final dividend of 31 cents per share was the maximum allowed by the regulator.

National Australia Bank reported $3.7 billion in cash earnings for the full year, a fall of more than 36% on the same time last year. Large notable items of $1.8 billion hurt, of which $1 billion related to Covid challenges. 

Woolworths food sales jumped almost 13% in the 1st quarter of the financial year, with sales totalling $12 billion, no doubt supported by the Ooshie collectables and lockdown in Victoria. 

The Aussie dollar rose this week against the US dollar, as the US dollar saw weakness stemming from the US election. 
The Reserve Bank of Australia announced significant stimulus at their November meeting including a range of measures. The cash rate was cut to 0.10% whilst the Bank launched their first ever quantitative easing program which will see them buy $100 billion of government bonds over the next 6 months. The Bank also made clear that they won’t be lifting the cash rate for some time. 

Australian credit growth rose slightly in September, to be up by 2% for the year, supported by rising owner-occupier housing credit. Both personal and business credit fell in the month, with personal credit down more than 12% over the year. 

Australia’s manufacturing sector has seen a marked improvement with a key index showing a large increase in October, pushing the sector into expansionary territory. 

Australian dwelling prices rose by 0.2% in October across the 8 capital cities combined, the first increase since April, to be up 3.7% over the year. Melbourne lagged, and has now fallen 5.6% since March. 

New lending for Australian housing rose by almost 6% in September and is up more than 25% over the year, helped by lower borrowing rates and significant incentives for first home buyers. 

The value of Australian retail trade fell by 1.1% in September, but still remains at an elevated level. Key drivers of the fall were food and household goods. The volume of retail trade bounced by 6.5% in the 3rd quarter following the 3.5% fall in the previous quarter. There was a strong rebound in spending on clothing and eating out in the 3rd quarter. 

The number of building approvals also rose strongly, up more than 15% in September to be 8.8% higher for the year. The gains came from both private houses and private multi-unit approvals. Over the past year, approvals for private houses are now up over 20% while multi-unit approvals remain lower by 12%. Non-residential approvals remain weak, falling more than 36% in September to be 25% lower over the past year. 

Australia’s trade balance recorded a surplus of $5.63 billion in September, with exports rising by 4% whilst imports fell by 6%. Exports will be impacted in the period ahead due to the increase trade tensions with China, whilst imports remain weak as the economic recovery has yet to build any momentum. 

The European Central Bank all but confirmed that are likely to provide additional stimulus at their December meeting considering Europe’s 2nd virus wave has resulted in more lockdowns and damaged the economic recovery. 
The US election is much closer than many expected, particularly the polls, with a result likely some time away considering how much voting was done via post and legal challenges from President Trump and his legal team. Right now, it’s too close to call, but betting agencies and political pundits have a likely Biden presidential victory with the Republicans holding control of the Senate. This would mean no US tax increases, no significant changes in legislation, but also no big fiscal stimulus which might entice the US central bank to provide further support. 

The Chinese government went after more Australian exports with timber, barley, and rock lobsters now caught in the crosshairs. The federal agricultural minister confirmed that China has suspended exports of Australian logs from Queensland and barley from another grain producer. 

European countries continue to increase restrictions with Britain, Spain, Austria, France, and Germany at or close to full lockdown. British PM Boris Johnson again under pressure, this time from within his own party, who are largely against lockdown and want to ensure any restrictions are only in place for a short period of time. 

The UK and European Union officials are apparently nearing a solution to break the 8-month deadlock to achieve a trade deal. The deadline for the trade deal remains mid-November. 

The Chinese government pulled the plug on the record $35 billion IPO of Ant Group, the Chinese fintech arm of Alibaba. Ant Group also suspended a Hong Kong IPO until the issue is resolved. It looks like the Chinese government might be punishing Alibaba co-founder Jack Ma for talking out of turn in relation to the country’s financial system.  

General Advice Warning

The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

Disclaimer

All statements made on this website are made in good faith and we believe they are accurate and reliable. Macarthur Wealth Management does not give any warranty as to the accuracy, reliability or completeness of information that is contained in this website, except in so far as any liability under statute cannot be excluded. Macarthur Wealth Management, its directors, employees and their representatives do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided on this website is owned by Macarthur Wealth Management. You may not alter or modify this information in any way, including the removal of this copyright notice.

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