30 Jul 2021
Bumper Aussie inflation drowned out by Sydney lockdown
- Equity markets were mixed this week as central bank rhetoric and virus concerns dominated developed markers whilst the Chinese government did its best to unsettle Asian and emerging markets.
- US 2nd quarter company reporting season is firing on all cylinders with a very high proportion of companies beating consensus estimates, on both the top line (revenues) and on the bottom line (costs). Analysts now expect aggregate earnings growth of 78% for the quarter on the same time last year, which is an increase from the 54% growth expected at the beginning of the quarter.
- In local stock news, Star Entertainment withdrew its merger proposal for Crown Resorts. The decision comes after a royal commission raised the prospect Crown could lose the licence for its Melbourne casino. Star said there was too much uncertainty to continue, whilst the Perth casino royal commission was given more time to complete investigations.
- Rio Tinto reported 1st half profit had more than doubled on the same period last year as Chinese demand for ore helped underlying earnings rise to $16.6 billion. The world’s largest iron ore miner declared a massive interim dividend of $7.62 a share.
- Spark Infrastructure shares rose after a US consortium improved its offer to take over the company at $2.88 per security. The Spark board said it was in security holders’ interest for the company to continue discussions with the consortium.
- Priceline pharmacy owner Australian Pharmaceutical Industries rejected the takeover from Wesfarmers stating that the offer undervalued the company, whilst share market and financial planning software vendor Iress saw an improved takeover from EQT Fund Management which the company rejected, but shared more financial data in the hope of extracting a higher offer.
- Australian inflation rose 0.8% in the June quarter, pushing inflation for the 12 months to 3.8%, finally coming in above the RBA’s 2-3% target band. The spike was largely due to base effects (ie. very low inflation reads dropping off) and a spike in automotive fuel (6.5%). The RBA’s preferred inflation measure rose by 0.5% in the quarter to see the annual rate hold at 1.6%. The RBA will likely look through the numbers.
- The Australian federal government re-introduced some stimulus programs to support state efforts as the continuing NSW lockdowns take their toll on the broader economy, with most economists now predicting that the lockdown will result in the national economy contracting in the this quarter. The current NSW lockdowns are costing the economy $257 million per day, according to EY, who also found that 100 days of restrictions at current levels would wipe out almost all the economic gains made in the first 6 months of the year. Nationwide lockdowns were costing the economy $2.8 billion per week.
- The latest CoreLogic data shows Australia’s property market continues to power ahead, mirroring the last price peak seen 4 years ago, which resulted in the banking regulator restricting the flow of credit. There’s no mention of near-term intervention, but rumours are swirling that the regulator stands ready to intervene if required.
- The US central bank kept its policy rate unchanged at 0-0.25% and didn’t make any announcements about when it planned to begin to reduce purchases on its US$120 billion month bond buying program. The statement they issued seemed more upbeat, but they maintained that the rise in inflation would be temporary and that the labour market still had substantial progress to go meaning they were a long way from raising rates.
- US economic growth for the last quarter came in at a 6.5% annualised rate, well below the 8.5% expected, but a step up on the revised 6.3% rate in the 1st quarter.
- The head of the European central bank said the bank has learned from errors of past crises and won’t derail the recovery by withdrawing emergency support early. The dovish comments drew the ire of the Germans and the Belgians.
- The labour market in England has sprung back to life adding to evidence of tightening in the national labour market that’s starting to push up wages, fanning concerns about inflation.
- China’s economy continued to grow at a stable pace in July, though there were some signs of weakness as property sales slumped and small business confidence slipped, as the government continued their efforts to “reset” corporate behaviour and power.