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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.  

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