Equities higher as central bank support reaffirmed

Blog
Friday 5th November 2021

Equities higher as central bank support reaffirmed

Blog
Friday 5th November 2021
Written by Chris Lioutas

Markets:

  • Local and global equity market mostly moved higher this week as central banks did their best to allay any concerns regarding any swift reversal in their easy policy stances. 
  • In local stock news, sleep apnoea specialist ResMed improved sales by 20% in the last quarter to US$904 million, with higher demand for sleep and respiratory products helped by a competitor’s product recall.
  • Westpac Bank released its full year result confirming a net profit of $5.458 billion and announcing a $3.5 billion off-market share buy-back on the back of improved performance and progress on strategies. Mortgage lending was up 3%, business lending up 4%, and total customer deposits up 4%.
  • AusNet has agreed to a takeover from a Brookfield Asset Management consortium, which will see all shares purchased at $2.65 each. The AusNet board preferred the bid to that of local energy gas pipeline owner and operator APA Group.
  • Iron ore prices fell to below US$100 a tonne on falling steel output in China and signs their economic growth is facing more headwinds. Steel restrictions are now being rolled out more frequently and limits have been extended.
  • The oil price dropped below US$80 a barrel as OPEC and Russia decided to stick with their plan to raise oil production by 400,000 barrels a day next month. There was also news about potential movement on the US-Iran nuclear deal which will bring Iran oil supply back into the market.
  • The Aussie dollar fell as traders got less excited about an earlier than expected RBA rate rise whilst falling iron ore prices and a strengthening US dollar didn’t help either.

Economics:

  • The Reserve Bank of Australia left rates unchanged at 0.1% and reconfirmed their bond buying (money printing) intentions of $4 billion a week until at least February 2022. They did however drop their government bond yield targeting program and also removed reference to 2024 being the earliest that they would raise rates.
  • Australia’s trade surplus printed at $12.2 billion in September, down from the revised record high of $14.7 billion recorded last month. Exports fell by 6.4% while imports fell by 1.8% in the month. Lower iron ore prices and volumes heavily impacted exports, whilst coal and LNG exports were higher. Imports were affected by global supply constraints, particularly in the import of passenger vehicles.
  • Retail trade rose by a stronger than expected 1.3% September with a small bounce in NSW ahead of October reopening, whilst Victoria saw a 2.1% fall. Clothing & footwear and eating out saw the biggest boost whilst spending on food and department stores was lower in the month. Retail trade volumes for the quarter fell 4.4%, heavily impacted by lockdowns.
  • Private sector credit grew by 0.6% in September to be 5.3% higher over the year. Recent trends continued into September with housing credit posting a solid increase, business credit expanded, and personal credit fell. Owner-occupied housing credit saw a stronger lift than investor credit. Will be interesting to see how APRA’s move to increase the serviceability buffer on loans impacts housing credit and prices ahead.
  • Producer prices showed rising inflationary pressures in the economy with prices rising 1.1% in Q3 alone, to be up 2.9% over the year. The biggest rises came from input costs in manufacturing with a 4.6% increase for the quarter taking the annual increase to 11.2% and with a 4% increase in input costs for detached housing to be 8% higher over the year.
  • Dwelling prices rose by 1.4% in October across the 8 capital cities with annual growth sitting at a stunning 20.8%, with Hobart, Canberra and Sydney leading the charge. House prices continue to outpace units, with house prices up 24% compared to units at 11.8%.
  • The value of new lending for housing excluding refinancing fell by 1.4% in September, largely due to owner occupied, with lending to first home buyers falling by 1.9% in the month to be down by almost 23% since the peak in January 2021. Lending to owner occupiers fell the most in Victoria. The average loan size has lifted to around $530,000 both owner occupiers and investors, rising sharply over the last year.
  • Building approvals fell by 4.3% in September with a large fall in private detached dwelling approvals as housing construction grants have ended. Renovation activity also fell in the month, but activity still remains elevated.
  • The US central bank decided to begin reducing the monthly pace of its asset purchases (money printing) by US$10 billion for government bonds and US$5 billion for mortgage-backed securities, in a heavily anticipated and largely expected announcement. They would still be buying US$105 billion a month, but the move sets a potential path and timeline for when rates may rise. 
  • The US central bank’s preferred inflation gauge rose 4.4% in September from the previous year, the fastest pace since 1991. 
  • The central bank of England voted to hold its interest rate at a record low of 0.1% and leave its bond-buying (money printing) program unchanged. However, the bank commented that it would probably become necessary to increase rates over the coming months in order to return inflation to the 2% target.
  • China’s economy showed signs of further weakness in October as power shortages and surging commodity prices weighed on manufacturing. A key reading showed manufacturing conditions contracted for the 2nd straight month, whilst non-manufacturing data came in well below consensus forecasts but remained in expansion. 

Politics:

  • India has deployed recently acquired US made weapons along its border with China as part of a new offensive force to show off its capabilities. The build-up in India’s northeast is centred in a piece of land claimed by China but controlled by India.
  • Leaders at the G20 summit endorsed a global minimum tax aimed at stopping big businesses from hiding profits in tax havens. However, they struggled to agree to stronger measures that scientists claim are needed to avert global warming. The costs of these measures may have had something to do with that.
  • The US and the European Union reached a trade agreement on steel and aluminium that will allow the allies to remove tariffs on more than $10 billion of their exports each year


Author 

Chris Lioutas, Director, Insight Investment Consultants

Chris holds the position of asset consultant for Maxim Advisors and is a current sitting member of Maxim's investment committee. 

With permission of the author, this article is presented by Maxim Private Clients Pty Ltd ASFL No. 511972

Maxim Private Clients Pty Ltd ABN 47 611 614 398 AFSL No. 511972

Disclaimer: This material has been prepared without considering any potential investor's or clients objectives, financial situation or needs. This article is of a general nature and does not consider the individual circumstances of its recipients. Any information contained within this publication should not be misinterpreted as advice in any way. Please consult your financial advisor should you have any questions or concern