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Aussie equities rise as JobKeeper nears end

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The Aussie share market finished higher this week whilst global markets were trending lower on concerns regarding further lockdowns in Europe. 

In local stock news, Crown Resorts received an unsolicited and non-binding takeover offer of $11.85 per share, valuing the company at $8 billion. The bid came from US private equity group Blackstone. The bid looks cheap in light of Wynn Resorts’ offer of $10 billion in 2019, but recent regulatory issues at Crown have given opportunistic suitors a window. 

General insurance stocks came under a little pressure this week in light of the rain bomb which blanketed and drenched most of NSW and QLD causing widespread flooding and damage. IAG said it had received more than 8,000 claims. 

Premier Investments, owner of retailers, defended not repaying $15.6 million in JobKeeper assistance after reporting an 88% profit increase. The business posted a 1st half $188 million net profit, a strong result. 

The oil price weakened again this week as concerns arose regarding demand as rising Covid cases in Europe and slow vaccine distribution resulted in some countries increasing lockdown restrictions. There was a small reprieve in the oil price during the week after a quarter-mile long cargo ship ran aground in the Suez Canal, blocking the busy route, raising supply concerns. 

The Aussie dollar fell this week as the US dollar strengthened on an improving economic outlook and dovish rhetoric from the US central bank. A weaker iron ore price also didn’t help. 
Australia’s unemployment rate dropped to 5.8% in February, 0.5% lower than it was in January, and now sits at pre-Covid levels. The recovery has been faster than anyone expected, however, there are some concerns for the period ahead in light of JobKeeper coming to an end. 

The Australian Treasury has said that the withdrawal of JobKeeper at the end of March could see as many as 150,000 more Australians out of work, whilst more than 1 million workers were still being supported by JobKeeper at the start of 2021. 

Australian retail sales figures for February fell 1.1%, not helped by lockdowns in Victoria and Western Australia, but also a function of the significant amount of retail spending brought forward last year and some concerns regarding the ending of JobKeeper. 

The Australian population fell by 4,200 in the 3rd quarter of 2020, the first fall since World War 1. Net overseas migration detracted from the population whilst the natural increase added but wasn’t enough. Victoria and NSW saw falls, whilst all other states recorded an increase. More recent data shows that the number of returning Australians is still only half pre-Covid levels. Skills shortages will be one to watch. 

Credit rating agency Fitch has upgraded its global growth forecast for 2021 to 6.1%. The new estimate would make for the fastest worldwide expansion since 1980. US economic growth is expected to reach 6.2% for the year, in light of significant fiscal and monetary support, whilst China is planning for 6-6.5% economic growth this year. 

US labour market data showed a declining number of Americans claimed unemployment insurance, with claims dropping to a 1-year low

A busy period for central bankers of late with the Bank of Japan carving out more flexibility in its stimulus arsenal following a review of its policy framework. The US Fed pushed through a dovish message (ie. no changes to their stimulus program and no rate rises), the UK central bank talked up their economic outlook, whilst the Norwegian central bank also provided a hawkish assessment. The Turkish and Brazilian central banks hiked interest rates in order to protect their currencies (which subsequently resulted in the firing of the Turkish central bank president), whilst the European central bank President applied pressure to governments pushing them to roll out fiscal stimulus promptly. 

A key survey showed that private sector activity in the Euro area unexpectedly grew for the first time in 6 months. Manufacturing in Germany was particularly strong, no doubt boosted by Chinese economic growth, whilst factory activity in France was also higher than expected. Both manufacturing and services showed faster than forecast expansions in the UK. 
European countries including Germany, France, and Italy, have restarted using AstraZeneca’s vaccine after the European authorities gave the vaccine its endorsement. Europe is a long way behind on the vaccine front. There are threats to withhold vaccine exports to the UK given AstraZeneca is a British company with production facilities throughout Europe. The need for Europe to speed up its vaccination efforts was brought into focus by France announcing a new lockdown in several regions as well as Germany extending its lockdown. 

US-China relations appear more strained than before after officials from both countries met in Alaska for 2-days of talks that quickly descended into bickering and insults. Fair to say the Americans got embarrassed on home soil and on the global stage. Not a good look.

US President Biden also traded barbs with Russian President Putin following news that the US is considering new sanctions on Russia to block construction of the nearly completed gas pipeline from Russia to Germany. Last time I checked, Russia and Germany were consenting adults. Germany and broader Europe need the gas if they are to transition away from fossil fuels over the longer term. Fair to say the US has bigger problems closer to home like the Mexican border and re-opening their economy. 

The authors of a report on the global economic recovery have noted that whilst Australia is amongst the top spenders on Covid recovery initiatives, it has diverted very little of those funds to green projects and ranks last among the top 50 economies in its recovery. Very simply, that’s because Covid recovery efforts should have nothing to do with green projects. Covid recovery is exactly that, ie. getting households, businesses, and the economy back to where they were pre-Covid as fast as  possible. The authors also noted that we had “hitched” our economic recovery to natural gas…..considering the world can’t transition to renewables without natural gas, “hitching” ourselves to natural gas is a smart and fiscally responsible thing to do.  

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