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Month: February 2021

Rising government bond yields spooks equity investors

Local and global equity markets fell this week on concerns that potentially higher inflation in the US may force the US central bank to be less accommodative. 

Concerns about rising US inflation and optimism regarding vaccine distribution saw government bonds get dumped (ie. prices fall, yields rise) in one of the ugliest weeks for bond markets in some time. However, higher bond yields also attract buyers, especially in a low-yield environment, in addition to central banks wanting to keep yields low to ensure lower borrowing costs. 

In local stock news, Australia’s biggest fuel seller Ampol, expects market conditions to remain challenging in 2021, with travel restrictions likely to continue denting fuel demand, particularly jet fuel demand. The company reported a loss in its refining business for 2020, with the company set to decide whether it will close its last remaining refinery in Australia. 

Property developer Lendlease posted a 1st half earnings decline of 37% as covid-19 stifled building development. The company reported net profit after tax of $196 million and a loss of $7 million from property write-downs. 

Former Commonwealth Bank boss Ian Narev will take the top job of jobs website company Seek, after leading the companies Asia-Pac and Americas operations since joining 2 years ago. Current boss Andrew Bassat will take the role of executive chairman and chief executive of Seek Investments. The company reported an 8% dip in 1st half net profit. 

The oil price rose strongly this week on re-opening optimism. Saudi Arabia and Russia remain on opposite sides of the debate about crude oil output ahead of their monthly OPEC+ meeting in March. The Saudis have been constraining supply in order to get the oil price higher, with higher oil prices also being supported by increasing demand globally and short-term supply issues in Texas. 
Australian retail trade gained 0.6% in January, an improvement on the 4.1% fall in December, but still impacted by state lockdowns and restrictions. Annual growth in retail is now running at 10.7%. 

The Australian wage price index rose by 0.6% in the 4th quarter to be up 1.4% over the year. The strong headline number partly reflects the unwinding of temporary pay reductions for some workers. Private sector wages grew by 0.7% whilst wages in the public sector grew by 0.3%. 

Construction work done in the 4th quarter was weaker than expected with a fall of 0.9%. Annual growth is now running at 1.4%. 4th quarter details included building work rising by 0.6%, residential work done up 2.7%, while non-residential work fell by 2.4% to be down 4.5% over the year. 

The volume of Australian capital expenditure rose by 3% in the 4th quarter, with mining investment falling by 1.5% and non-mining investment lifted by 4.9%. Northern Territory saw the strongest lift, following by TAS, NSW, and VIC, whilst QLD recorded a fall. 

US Fed Chair Powell was sanguine about a recent jump in long-term government bond yields downplaying concerns over inflationary pressures and reiterated continued monetary support. He went on to say that the economic recovery was uneven and far from complete, adding that investors are mostly responding to an anticipated rebound as vaccine deployment curbs the spread of the virus. 

US Treasury Secretary Janet Yellen said the US economy was still in a deep hole and President Biden’s US$1.9 trillion relief plan should not be reduced. She also said that infrastructure works were planned to boost the economy and would be paid for by higher taxes. Not good for corporates. 

Minutes of the European central bank’s January meeting showed policymakers expressing fresh concerns over the strength of the euro currency but appeared relaxed over the recent rise in government yields. 

European central bank President Lagarde said the bank was closely monitoring rising borrowing costs (ie. bond yields), which could point towards future central bank intervention in debt markets. The US central bank is likely contemplating the same move. Both are hoping that the pace at which bond yields have recently risen starts to abate (ie. less selling pressure) and/or private investors start buying government bonds given the attractively higher yields. If the private buying is not enough, the central banks will be forced to up their bond buying programs. 
With the “green” energy push in full-flight globally, the Australian National Party has called for a $10 billion clean-energy fund to invest in coal-fired power stations……the National Party wants to explore clean coal, carbon capture, and nuclear as options to assist with the transition away from fossil fuels given we can’t transition overnight. Elsewhere, a parliamentary committee has launched an inquiry after local banks and pension funds have been restricting support for coal, saying such steps could imperil key export industries and liking it to “corporate activism”. 

Australia began their vaccine rollout this week with Prime Minister Scott Morrison receiving his first jab. The vaccinations will be made available in stages based on ranking of critical areas. There are no plans to make the vaccine compulsory in Australia but the health minister said it was critical that the community had confidence in the vaccine program. Vaccine take-up continues to be strong in the US, UK, and Israel, but appears too slow elsewhere in the world. Vaccine producer AstraZeneca told the European Union that it expects to deliver less than half the vaccines it was contracted to supply in the 2nd quarter. Johnson & Johnson’s one-dose vaccine moved closer to emergency use authorisation in the US. 

US Democrats are pushing to quickly pass President Biden’s US$1.9 trillion stimulus bill before some key deadlines. A vote in the House could occur before the week is out which would see the Senate vote next week, testing the smaller majority the Democrats have in the House post the election and the slim control they have in the Senate.  

Need help? Contact us Macarthur Wealth Management for expert financial advice. https://www.macarthurwealth.com.au

We are a Parramatta based financial planning practice, specialising in retirement planning, superannuation and investment advice.

Whether you want to start preparing for retirement or have already done so we can help you implement a personalised financial roadmap.

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.

Equity investors fret over US inflation fears

Both local and global equity markets were softer this week as investors fretted over potentially higher US inflation which could lead to missteps or reduced stimulus from the US central bank. 

FOMO (fear of missing out) is clearly back in vogue, partnering its closest cousin TINA (there is no alternative), with some of the strongest flows into equities not seen since the GFC, not to mention the rarefied air that technology stocks, IPOs, and cryptocurrency currently find themselves in. The conditions are there for this to continue for a while longer, but what can go up can also come down. 

In local stock news, BHP shares rose after the company reported its best 1st half profit in 7 years and declared a record interim dividend. The company expects strong Chinese demand to continue in 2021. 

National Australia Bank enjoyed a 47% increase in cash earnings during its 1st quarter trading, helped by improving economic and health outcomes in Australia and New Zealand. Westpac’s cash earnings for the same period rose 54% due to higher margins, lower expenses, and less bad debts than previously provisioned for. ANZ’s cash profit was up 54% with costs flat and all major divisions performing well through the quarter. 

Treasury Wine Estates will reorganise into 3 new divisions after its half-yearly profit plunged due to heavy Chinese tariffs on Australian wine imports. The world’s largest listed winemaker will operate under Penfolds, Treasury Premium Brands, and Treasury Americas divisions starting next financial year. The company remains confident it can reroute its luxury ranges to other markets. 

Coles share price fell sharply in contrast to a stunning set of results with total sales surging 8.1% to over $20 billion, same-store sales in supermarkets up 7.2%, and net profit rising 14.5%. The CEO did his best to talk down future expectations as people resume eating out more and working back in the office. He also cited the lack of immigration as a big concern for the supermarket sector. 

Energy prices rose sharply this week on concerns of a global supply shock as a deep freeze swept its way across the USA. This follows the cold snap Europe went through only a week or so ago. Texas experienced minus 18-degree temperatures, with minus 1-degree temperatures recorded inside people’s homes, as rolling blackouts to preserve the energy grid meant cities went without power for parts of the day. 
Australian employment rose by a solid 29,100 in January following a revised 50,000 increase in December. The result saw the unemployment rate dip to 6.4% and the underemployment rate move down to 8.1%. 

US inflation data came in below rising inflation expectations, with consumer prices up 0.3% in January. The result was above December’s increase. The 12-month inflation rate has now ticked up to 1.4%, remaining well below the US central bank’s target. 

US consumer confidence deteriorated for a 2nd consecutive month in February with consumer sentiment also falling and coming in below expectations. Consumers’ views of current conditions declined whilst their expectations regarding future conditions fell markedly. US federal government needs to figure out their priorities and states need to reopen. 

The US central bank chair said that the jobs market remains a long way from a full recovery and that monetary policy would remain very accommodative until there was substantial progress on employment and inflation. Jobless claims have been rising of late. 

4th quarter UK economic data showed a 1% rise on last quarter, coming in above the 0.5% expected, but still down 7.8% on the year which is the weakest in the major economies. 

The International Energy Agency has cut forecasts for world oil consumption in 2021 saying that the market for oil remains fragile as travel and economics remain limited by virus policy response. 
The US senate voted not to impeach former US President Donald Trump with only 7 Republican senators crossing the floor to vote with the Democrats. The process ended up being a waste of time and money, and simply distracted the government from more important matters like vaccine rollout and the economic recovery effort. The government could still bring civil proceedings but it’s unlikely to do so given the evidence produced during the impeachment hearing hurt both political parties. The 7 Republican senators who crossed the floor are already under pressure from their representatives. 

The state of Victoria entered a snap 5-day stage 4 lockdown (shutdown) following only a handful of cases. The Australian Open got a hall-pass. The claims made by the Andrews’ government and resultant overreaction clearly shows that authorities have no faith in their contact tracing and quarantine protocols even after Andrew’s claims of their “gold standard” and a “model that other states want to adopt”. He actually said that.

The US has secured additional vaccine supply from both Moderna and Pfizer, with both companies accelerating their deliveries. The US is inoculating at an average of 1.62 million doses per day. At that rate, more than 75% of the US population will be inoculated within 9 months. However, on a global level, it would take more than 5 years to inoculate that percentage of the world’s population. Herd immunity can’t and shouldn’t be ignored, neither should weighing up the risks for those under 50 years of age with little to no pre-existing conditions. 

Following our recent standoff with Google, it was Facebook’s turn to try and bully the Australian government into not proceeding with changes to its media laws. Facebook carried through on its threats to remove Australian “news” items from its network. A pretty silly move during a pandemic. It also looks like Facebook restricted other government and government related Facebook pages in order to test how much revenue it would lose if it continued down this path. The moves saw a firm rebuke from Prime Minister Scott Morrison who is standing firm.  

Need help? Contact us Macarthur Wealth Management for expert financial advice. https://www.macarthurwealth.com.au

We are a Parramatta based financial planning practice, specialising in retirement planning, superannuation and investment advice.

Whether you want to start preparing for retirement or have already done so we can help you implement a personalised financial roadmap.

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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