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Markets hold their own in light of plenty of news flow

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

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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Markets buoyed by US stimulus bills

Need help? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide. (02) 9683 2869. https://www.macarthurwealth.com.au

Local and global equity markets rose strongly this week buoyed by strong company earnings results, the passage of the US infrastructure bill, and progress on the bigger budgetary bill.

Analysts now expect 2^nd quarter profit growth of 93% for the 500 largest US companies. With their quarterly reporting season almost complete, 87% of companies have beat analyst expectations, which is the highest beat on record.

In local stock news, general insurer Suncorp improved full-year cash earnings by 42% with shareholders to receive a special dividend, whilst the company will also undertake an on-market stock buyback.

Toll road operator Transurban revealed that the costs of the West Gate tunnel project in Melbourne have blown out by about $3.3 billion. The company reported statutory profit of $3.27 billion. Lockdowns in Sydney, Brisbane, and Melbourne have reduced the number of cars on the road and have weighed on revenue.

Commonwealth Bank of Australia released its 2021 financial year results reporting a $1.4 billion increase in cash profit to $8.7 billion over the last 12 months, an almost 20% increase. The bank also announced a $6 billion off-market stock buy-back.

The gold price had fallen sharply over the last week and half before mounting somewhat of a recovery in the last few days. A stronger US dollar along with the continuing economic recovery and expectations of the US central bank paring back its stimulus program have all put downward pressure on the gold price of late.

The iron price has continued to fall from its lofty heights following a report which said that China wants to limit steel makers’ impact on its environment, which made investors reassess their expectations for iron ore demand.

The Reserve Bank of Australia has revised its economic growth forecast down to 4% for 2021 but has kept their forecast for unemployment at 5% for the same period. They did revise their unemployment forecast for 2022 down to 4.25% and left their inflation forecasts unchanged at 1.75% for 2022 and 2.25% for 2023.

The negative impact of lockdowns have begun to rear their ugly head, putting aside the societal issues, as more than 15,000 home and business owners were unable to repay their loans in July. In addition, an additional 150,000 Australians became unemployed last month according to Roy Morgan. Their latest data showed the bulk of the job losses came from part-time work whilst 61,000 full-time workers also became unemployed. 619,000 workers are now looking for full-time work whilst 803,000 are looking for part-time work.

July saw the National Australia Bank business confidence index and business conditions fall sharply, which isn’t surprising given the size and extent of lockdowns in a number of states. Australian consumer sentiment fell by more than 4% in August as consumers’ fears of unemployment rose sharply.

US consumer prices for July rose at its slowest pace in the past 5 months as some price increases have subsided on the back of softening demand and increased supply. Even so, the July inflation number of 0.5% is still quite high, with the annual rate at 5.4%, as demand pressures and supply issues remain.

US nonfarm payrolls increased by 943,000 jobs last month a Labor Department report showed. Economists had forecast payrolls would increase by 870,000. The report also showed strong wage gains as employers competed for scarce workers as many workers remain at home collecting overly generous unemployment benefits. The unemployment rate also dropped to a 16 month low.

The US central bank had contrasting rhetoric from a couple of members this week with one suggesting that the US should be well past the pandemic crisis before the central bank raises rates. Another member said high inflation this year may have already met one of the bank’s benchmarks for raising rates.

The Germans have again warned that inflation in the Euro area could pick up faster than expected and urged the European central bank not to drag out their emergency bond-buying program.

A gauge of investor expectations for the German economy plunged to 40 from 63 points in July as fears about the impact of the delta variant gather pace.

Chinese economic data showed exports rising by 19% in July on the same time last year, coming in just under expectations, whilst imports were up 28% on the same time last year, also coming in below expectations.

China’s central bank has fanned expectations of further monetary policy easing, saying in its latest quarterly report that inflation pressures are controllable whilst highlighting risks to the economic growth outlook.

The US Senate voted to progress the US$1 trillion infrastructure bill with 19 Republicans voting with Democrats to support the push. However, the Democrat leader of the House has said she will only bring the bill to a vote after the Senate passes a separate US$3.5 trillion bill which has all kinds of things in it, most of it Democrat election promises, which the Democrats will likely look to push through via a process called reconciliation (ie. without Republican support). The debt ceiling (currently at US$28.5 trillion….) with partisanship likely to make it a tough task.

The Biden administration faced some hard truths this week as it pertains to foreign policy. A return to the Iran nuclear deal looks to be dead in the water as Iran races towards the capacity to build a nuclear bomb in light of perceived US weakness. The US will now be sending troops back into Afghanistan following an ill-advised move earlier in the year to remove US troops from the country. The country has again become a hotbed for terrorism with the Taliban carry out deadly attacks against US allies left behind. Lastly, US energy self-sufficiency is very much a thing of the past after US oil inventories got so low that President Biden had to ask OPEC+ to increase supply. US inventories are low due to increase in demand, but mainly due to government policy banning new investment in oil & gas and pipelines.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

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A great way to help your kids – and you

Need help? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide. (02) 9683 2869. www.macarthurwealth.com.au

We are always hearing about how important it is to insure our own lives and income, but what about insuring our children’s.

How would your adult child and their family survive financially in the unfortunate event of an accident or an illness that prevented them earning an income for an extended period of time?

Income protection, TPD and trauma insurance are often not a consideration to a young family in today’s financial climate with many struggling with mortgage repayments, education spending and increased living costs.

But what would be your role if your child and their family were suddenly without an income? Without adequate insurance how would they cope?

What if you had helped your child to buy his or her first home and that child suffered a long term-illness or disability? How would that affect you if they couldn’t make the repayments?

Here’s a scenario…

Alan and Joanne’s married son Tim was involved in a car accident, sustaining a spinal injury that prevented him from working for two years. Unfortunately, Tim did not have income protection or accident insurance.

The bank foreclosed on his mortgage and Tim and his young family were forced to move in with Alan and Joanne. Eventually, Tim recovered and was able to return to work.

Aside from the emotional impact on Tim and his family, Alan and Joanne’s retirement plans were seriously compromised. Joanne’s health deteriorated due to the extra stress of the situation, and she was diagnosed with severe depression.

What could Alan and Joanne have done differently?

They could have asked Tim if his income was protected in the case of an unforeseen illness or injury, Learning that the young couple was allocating all spare cash to the mortgage, the parents might have offered to help pay for adequate insurance cover.

Even if you are not in a position to contribute to the cost of their insurance, raising the issue with your adult children and encouraging them to talk to a financial professional could be some of the best guidance you could ever give them.

Need help? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide. (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Company reporting season buoys investor sentiment

Need help? Contact Macarthur Wealth Management for expert financial planning in Parramatta and Sydney wide. (02) 9683 2869. https://www.macarthurwealth.com.au.

Local and global equity markets largely trended higher over the week, buoyed by strong company earnings results and slightly more dovish central bank sentiment.

Results for US corporate quarterly reporting season have been much stronger than expected at the half-way mark, with 92% managing to meet or beat earnings estimates while 86% have done so on the revenue side, making it the highest beat ratios since 1^st quarter 2008.

In local stock news, National Australia Bank announced it will buy-back $2.5 billion in shares. The buy-back will happen in August and follows ANZ declaring a similar move earlier this month. Banks are awash with capital following wealth management sales and provisioning for bad debts which never eventuated as the government and central bank saved everyone.

Ryan Stocks has become the chairman of Boral after Seven Group gained almost 70% of the company through its takeover efforts. Seven has also installed its CFO as a director, whilst the previous Boral chair has retired and 2 other board members will retire after the AGM.

US digital payments giant Square Inc has agreed to acquire Afterpay in a deal worth $39 billion, or $126.21 per share. The all-stock deal will see Afterpay integrated into the existing Square ecosystems worldwide. Afterpay’s board has unanimously recommended the deal to shareholders. Afterpay shareholders are expected to own 18.5% of Square once the deal is enacted.

Oil Search’s board has endorsed Santos’ offer of $4.52 a share, which will make the combined company one of the 20 largest oil and gas providers in the world.

The oil price trended lower this week as concerns arose regarding the pace of the global economic recovery in light of increasing virus restrictions in some countries.

The Reserve Bank of Australia has unsurprisingly kept the cash rate at 0.1% at their August meeting. Given current lockdowns across the eastern states, any rhetoric about the bank moving earlier than expected to remove stimulus has now gone.

Concerns continue to mount regarding the economic recovery given the continued length of the Sydney lockdown (including army deployment), with Melbourne and parts of Brisbane also now under lockdown. 3^rd quarter economic growth will be negative and 4^th quarter isn’t looking too good at this stage, which might see the economy dip back into recession.

Australian credit rose by a solid 0.9% in June, boosted by a 1.6% business credit, likely the result of businesses drawing down credit facilities to survive the lockdowns. Housing credit also posted a strong lift for the month with both owner occupier and investor credit rising. Personal credit fell, hardly surprising given concerns regarding the length of lockdown.

Australian dwelling prices rose by a solid 1.6% across the 8 capital cities in July, with annual growth sitting at 15%. Price rises in July were particularly strong in Sydney, Brisbane, and Canberra. Regional prices increased by 1.7% in the month. The monthly rate of growth peaked in March this year at 2.8%, and has since trended lower, but the pace of growth remains strong.

Residential building approvals in Australia fell by 6.7% in June, driven by a large drop in approvals for houses as growth settles at lower rate post the HomeBuilder scheme finishing. New lending for housing fell by 1.6% in June, with lending to first home buyers driving the fall whilst lending to investors rose.

Plenty of rhetoric from US central bank members this week pointing to internal differences of opinion but not so far apart as to cause any major issues for chair Jerome Powell on the communication front. A couple of prominent members waxing lyrical about the economy being strong enough to see a reduction in money printing from 2022 and potential rate rises in 2023.

US private payrolls data increased by a significantly less than expected 330,000 in July, versus expectations for more than 690,000.

Price increases are starting to hit home in Europe with Germany’s inflation rate jumping to the highest level since 2008. Likely temporary given both the demand (government stimulus, restricted travel) and supply shocks (restricted work practices, border restrictions on labour, commodity price increases), but the data will fuel debate about whether policy makers need to start removing stimulus faster than anticipated. Highly unlikely at this stage, but worth monitoring.

The Chinese government has pledged more effective fiscal support for their economy and tighter supervision of overseas share listings as policy makers highlighted economic risks in the 2^nd half of this year. The US securities regulator has also increased disclosure requirements for IPOs of Chinese companies.

US President Biden and his administration will likely ramp up already very high levels of government stimulus as the US economic recovery begins to stall, with $10 trillion of new spending/investment planned. 10 million Americans remained unemployed with new obstacles emerging as some states reconsider mask mandates and other restrictions, all whilst many of the emergency stimulus programs from 2020 come to an end. The political cycle is clearly front and centre as the Biden administration looks to buy its way to a stronger rebound in light of the all-important US mid-terms next year.

A Hong Kong court sentenced the first person convicted under a national security law imposed by Beijing, to 9 years in prison. Doesn’t bode well for dozens of pro-democracy activists awaiting similar trials.

China’s government has quietly issued new procurement guidelines in May that require up to 100% of local content on hundreds of items, erecting fresh barriers for foreign suppliers, according to a number of sources. The government has not responded to queries on the document. The edict flies in the face of their admission to the WTO and their phase 1 trade deal with the USA. Hardly surprising.

YouTube suspended Sky News Australia from uploading content onto its website for a week under its “strikes” system. The Alphabet (Google) owned company said that the media company had breached its Covid-19 misinformation standards. Sky News Australia vehemently denies the allegations. In any case, a stain on censorship in Australia’s history.

A growth number of Australian government MPs are pushing back against the use of vaccine certificates for domestic travel and attendance at venues and events. It came after news the government had agreed on a passport system for international travel, but was facing internal unrest when it comes to domestic use.

Need help? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide. (02) 9683 2869. https://www.macarthurwealth.com.au

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Markets still fretting over rising virus cases

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

Equity markets were mixed this week with developed markets flat to slightly lower on virus concerns whilst emerging markets moved higher assisted by Chinese policy support.

A big jump in quarterly earnings is expected to mark a peak for US profit growth in the recovery from last year’s earnings collapse. Upcoming quarterly results will be key, with analysts now expecting 66% of companies to beat guidance.

In local stock news, Sydney Airport’s board has rejected the $8.25 per share bid from a consortium of super funds citing that the offer undervalues the business, whilst Spark Infrastructure declined an offer for all its securities from a consortium of pension funds offering $2.80 per security. Pension funds cashed up, with cash burning a hole in their pockets.

Wesfarmers made a $687 million bid for Australian Pharmaceutical Industries, the distributor of medicines and healthcare products and the owner of Priceline pharmacies, which will form the basis of a new healthcare division.

Shareholders of waste management provider Bingo Industries voted for a Macquarie takeover, whilst Seven Group continues buying shares in takeover target Boral heading towards the 50% mark.

Buy-now-pay-later stocks fell sharply during the week after a report indicated that Apple plans to allow users to repay Apply Pay purchases in instalments.

Oil prices fell this week on concerns regarding rising virus cases globally, which also resulted in defensive assets like gold and government bonds performing well.

HSBC’s chief economist for Australia and NZ said with NSW accounting for 32% of the nation’s total economic output, an extended lockdown was likely to take a significant economic toll on Australia’s recovery from the virus. NSW Treasury estimates that each week of lockdown takes $850 million off activity.

Australian employment rose by 29,100 in June following a 115,200 increase in May, with the unemployment rate moving down to 4.9%, its lowest level in a decade. However, recent lockdown measures will hurt those numbers in the period ahead.

New Zealand’s central bank surprised most investors with a plan to scrap its bond buying program (money printing) from next week. The result will likely be a soaring NZ dollar. Not good for an export-led economy.

US central bank chair Jerome Powell said it was still too soon to scale back the bank’s aggressive support for the US economy while acknowledging that inflation has risen faster than expected but portrayed a recent jump in inflation as temporary and focused on the need for continued job growth.

Data indicated that US consumer prices rose by the most in 13 years last month, while core consumer prices surged 4.5% on the same time last year, the largest rise since November 1991. The bond market noticed briefly, before turning attention to rising virus cases.

European central bank president Christine Lagarde has signalled that new guidance on monetary stimulus will be provided shortly and that fresh measures might be brought in next year to support the Euro-area economy after the current emergency bond program ends.

China’s central bank cut the amount of cash most banks must hold in reserve in order to boost lending in the economy as growth starts to wane.

China’s exports unexpectedly surged in June, helping to underpin the economy amid signs the recovery is starting to slow.

In a sign that US-China relations won’t be fixed any time soon, the Biden administration will add more Chinese entities to its economic blacklist over alleged human rights abuses whilst the US Senate passed a bill that would ban all goods from China’s Xinjiang region unless importers can prove they weren’t made with forced labour. US relations with Iran don’t look any better with the likely realisation that the 2015 Iranian nuclear accord may be beyond saving, with no progress after multiple rounds of talks.

On the virus front, the pace of reopening remains very mixed around the world whilst virus cases are rising in many countries. Most US states continue to reopen whilst California has just introduced some restrictions. The UK is proceeding with full reopening whilst cases continue to rise amongst a population with high vaccination rates. The rest of Europe remains mixed, particularly between the north and south, whilst cases continue to rise in South-East Asia. Closer to home, all states have seen varying degrees of increases to restrictions, with NSW’s lockdown extension and VIC entering a “snap” 5-day lockdown.

In a sign that the people have had enough, we saw uprisings and street protests all around the world this week. Cubans have had enough of communism, South Africans weren’t happy with the jailing of former leader Zuma, whilst we saw protests in France, Greece, and here in Melbourne against government-imposed lockdowns and vaccine passports.

Finance ministers from the US and Europe expressed confidence that a global tax deal endorsed by the Group of 20 has enough momentum to overcome domestic political obstacles in time for it to be finalised in October.

Democrats on the US senate budget committee agreed to set a US$3.5 trillion spending level for a bill to carry most of President Biden’s economic agenda into law without Republican support. The bill would require the support of all 50 Democrats. This is in addition to the US$579 billion bipartisan infrastructure plan.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Markets hold their own in light of plenty of news flow

Markets buoyed by US stimulus bills

A great way to help your kids – and you

Company reporting season buoys investor sentiment

Markets still fretting over rising virus cases

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Markets hold their own in light of plenty of news flow

Markets buoyed by US stimulus bills

A great way to help your kids – and you

Company reporting season buoys investor sentiment

Markets still fretting over rising virus cases

Search

Recent Posts

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Enjoythe ride.

Company

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Enjoy
the ride.