Markets hold their own in light of plenty of news flow

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Local and global equity markets looked set to finish the week higher in what has been a topsy-turvy week for investor sentiment.

In local stock news, Commonwealth Bank’s $6 billion share buy-back was more than $18 billion oversubscribed with an average scale back of almost 80%. Those holding a smaller number of shares were scaled back less whilst those left with less than 20 shares will see them compulsorily acquired.

Boral has completed the sale of its North American building products business for almost $3 billion to an American company. Boral has also completed the sale of its timber business for $64.5 million. Proceeds will be used to reduce debt.

Oil prices jumped to 7-year highs after OPEC+ agreed to stick to gradual production hikes, ignoring calls to increase production at a faster pace to bring down the oil price. The rapid ascent in the oil price has been due to a toxic combination of simultaneous re-opening across the globe (demand) along with significant under-investment in fossil fuels over the last few years (supply) given the focus on renewables. Russian President Putin said he was ready to stabilise energy prices by increasing gas shipments to Europe.

The Reserve Bank of Australia maintained the cash rate at the record low of 0.1% for the 10th consecutive month. It also confirmed its government bond yield targeting and its continued purchase of government securities at a rate of $4 billion per week at least until mid-February 2022. The central bank Governor reiterated that they expect the economy to be at pre-Delta variant levels by the 2nd half of 2022.

The Australian banking regulator APRA has raised the minimum interest rate buffer that lenders need to account for when assessing home loan applications in an attempt to slow booming home prices. The interest buffer has been increased to 3% from 2.5%. Time will tell if they need to do more to achieve their objective in what is a delicate balancing act.

Australian private sector credit grew by 0.6% in August, up 4.7% over the year, with housing and business credit rising, whilst personal credit contracted. Owner-occupied housing credit is now up 8.4% for the year whilst personal credit is down 5.6%.

Australian dwelling approvals unexpectedly rose by 6.8% in August, against expectations of a 5% decline, with both apartment and detached housing approvals increasing. Approvals for apartments drove the monthly gain. WA, SA, and VIC saw the strongest overall gains.

Job vacancies fell by 9.8% in the 3 months to end of August but remain 46% above their pre-pandemic levels. Private sector vacancies fell by 10.9% whilst public sector vacancies were up 2.3%. NSW, SA, and TAS saw the largest falls.

Australian dwelling prices rose by 1.5% across the 8 capital cities, with annual growth now sitting at 19.5%. Hobart, Canberra, and Sydney led the charge in September.

The value of new lending for housing, excluding refinancing, fell 4.3% in August, a larger fall than expected. Lending to both first home buyers and owner occupiers fell whilst lending to investors rose. Lending to first home buyers saw the biggest fall and is now down more than 21% since the peak in January 2021. Affordability hitting home.

Australia’s trade surplus came in at a record $15.1 billion in August, with exports up 4.1% whilst imports fell 1.5%, against expectations of a $10 billion rise. Non-rural exports were up a very strong 11.3% in the month to now be up more than 70% over the year. Recent iron ore price falls should see the trade surplus retreat somewhat in the period ahead but still a massive number for August.

Asia’s manufacturing activity rebounded in September after virus fears and restrictions eased. But European manufacturers reported increasing strains from supply chain squeezes. That, plus energy shortages, not helping.

China’s central government officials ordered the country’s top state-owned energy companies, with all forms of fuel on the table, to secure supplies for this winter at any cost as energy shortages threaten life and their economy.

Domenic Perrottet has been confirmed as NSW’s youngest ever premier, largely as expected, winning an internal party room vote very easily. He was most recently the Treasurer and has made some subtle changes to his front bench. Perrottet has also announced a faster easing of virus restrictions than his predecessor’s plan. Nationals’ leader and Deputy Premier John Barilaro also announced he is retiring from politics.

US politics remained messy enough to impact market sentiment as congress continues to debate their self-imposed debt ceiling of which any breach will see the government unable to pay their bills. Democrats are considering a smaller stimulus package to improve chances of it being passed, whilst the Biden administration is also set to unveil its China trade policy following a review of import tariffs. Interestingly, a recent report indicated that China is not complying with phase 1 of their trade deal with the US.

The Chinese government sent a record number of fighter jets into Taiwan’s defence zone over its national day weekend, with the numbers rising again early this week before Taiwan scrambled fighter jets and deployed missile systems to monitor Chinese planes. The show of force over 4 consecutive days is part of a growing and troubling long-term trend.

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