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Equity markets slide as virus cases rise

MARKETS
Local and global equity markets weakened this week as the US failed to pass any new stimulus and rising virus cases in Europe saw significantly increased restrictions. 

In local stock news, Rio Tinto’s September quarter iron ore production improved to be slightly below the same period last year as staff returned to pre-virus work rosters. Production year to date is running slightly ahead of the same time last year. BHP posted a 7.2% rise in iron ore production in the quarter, supported by strong demand from China. 

Westpac Bank said it would sell its 10.7% stake in Zip Co whilst also confirming a court has approved its $1.3 billion fine for breaching anti-money laundering rules. 

The Aussie dollar had a mixed week, falling early in the week on increased likelihood of RBA stimulus at the November meeting, but then rising late in the week on the back of some strong economic data out of China. 

ECONOMIC

Preliminary estimates have Australian retail trade falling by 1.5% in September. Falls were recorded in food, household goods and clothes, whilst spending on department stores and eating out rose. Consumers possibly getting thriftier in light of tapering JobKeeper and JobSeeker payments. In annual terms, retail trade sits 5.2% higher over the year. 

Australian Bureau of Statistics data showed that just under a 1/3rd of businesses reported a fall in monthly revenue in October, compared with nearly half in July, whilst 7% reported a decrease in their number of employees versus 13% three months earlier. 

A key US central bank member made comments that caught some by surprise. He indicated that there is now an open question as to whether there will be an indefinite need for the US central bank to keep buying US bonds (QE) to support market function given how big the US bond market has become, which may be too large for private investors to absorb, thus resulting in higher borrowing costs for the US government. Most people in the know expect this to be the case anyway. Maybe the member’s brazenness caught people by surprise instead. 

US retail sales in September far outstripped expectations and consumer sentiment for October has come in better than expected. However, the lack of new government stimulus may reverse some of these gains. 

Data showed that the number of Americans filing for unemployment benefits last week dropped more than expected to 787,000, but still remains very high, especially in the absence of any new stimulus. 

Key Chinese economic data was released with the economy growing 4.9% in the September quarter from a year earlier, which was lower than expectations for 5.2% rise. Industrial output rose strongly in September, consolidating the strong August numbers. Retail sales grew 3.3% which was significantly better than August numbers. 

POLITICS

Looks likely the Chinese government is now targeting Australia’s cotton industry with China apparently discouraging its spinning mills from using Australian imports. The development follows reports that China has suspended purchases of Australian coal. The last time they restricted Australian coal in February 2019 was due to the Australian Government’s restrictions on Huawei. 

Whilst we saw increased virus restrictions throughout Europe, as the Europeans realised that normal summer vacationing probably wasn’t the best idea, we still haven’t seen a corresponding surge in hospitalisations and/or deaths. As such, any increased restrictions should be measured, targeted, and temporary. Ireland disregarded that, locking down all non-essential businesses for 6 weeks. Interestingly, Sweden is seeing no increase in cases. We saw declining new cases closer to home with NSW & VIC lifting more restrictions whilst NSW is allowing in NZ travellers. The other states need to move towards lifting border restrictions. Pfizer, one of the companies developing a vaccine, announced it could apply for US authorisation for their vaccine in November. 

European Union leaders refused to make any further concessions over post-Brexit trading arrangements with the UK, putting pressure back on UK PM Boris Johnson to honour the terms of the withdrawal agreement signed last year. Not looking good for the UK and their economy. 

Fresh new US fiscal stimulus remains unlikely even though the Treasury Secretary told House Speaker Pelosi that President Trump would lean on his party to sign in a stimulus package if agreed to by Democrats and the Trump administration. Senate Majority Leader McConnell rejected Trump’s assertion, risking Trump’s ire, saying that he could not sell a larger package to his members but that the Senate would vote on a smaller package next week. Tough game. American people need more stimulus, and that stimulus needs to be purposeful not wasteful, all whilst politicians are seeking re-election.  

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