Equity markets weaker as ECB talks taper

Blog
Friday 10th September 2021

Equity markets weaker as ECB talks taper

Blog
Friday 10th September 2021
Written by Chris Lioutas

Markets:

  • Local and global equity markets mostly trended lower for the week as concerns regarding the US economic outlook rose, and the European central bank announced plans to reduce their bond buying program.
  • Asian equity markets saw somewhat of a reprieve following a painful few weeks in light of the Chinese government’s crackdown on corporate, societal, and environmental behaviors.
  • In local stock news, Macquarie Group shares shot up with the company announcing that 1st half earnings would be nearly double from a year earlier, helped by its commodities and global markets division.

Economics:

  • The Reserve Bank of Australia has left the cash rate on hold at 0.1% whilst they continue to target a 0.1% yield on government bonds maturing in April 2024. The Bank did reduce their weekly bond buying (money printing) pace from $5 billion to $4 billion a week but chose to extend the new pace of purchasing until at least February 2022 in order to provide some certainty and continued support in light of the current lockdown situation.
  • Australian job ads posted online fell by a further 5.6% in August, the 3rd consecutive monthly decline. Lockdowns taking their toll. The number of Australian residents employed in Q2 2021 was 0.8% above its pre-Covid high, but the total number of persons employed (residents and non-residents) was 1.6% below the peak. Non-resident workers have declined from 525,000 to 200,000, with further falls likely.
  • New research shows that more than half of all mortgage holders are concerned about the implications of rising rates (still a long way off), with 15% of Australians unsure of how they will make their repayments when they do. The data also showed that as much as 75% of take-home pay in some cities is being spent on repayments.
  • Head of Australian economics at the CBA has said they are forecasting that the Australian economy will contract by a very large 4.5% in the September quarter, and that the massive loss of production will be accompanied by a huge fall in jobs. No Job Keeper or Seeker to the rescue this time around.
  • The US Labor Department’s employment report showed the pace of hiring slowed significantly in August with the economy adding 235,000 jobs, well below the 720,000 jobs economists estimated.
  • “Enhanced” (pandemic) US unemployment benefits expired this week, which will push many back into the workforce given the generous government payments being received. There are currently close to 11 million job openings with almost 8.5 million unemployed. The gap will need to close soon if the US economic recovery is to continue.
  • The European central bank will dial down (taper) the pace of its pandemic bond purchases (money printing). The move came after inflation hit a 10 year high in August and 2nd quarter economic growth beat expectations. The bank has been buying bonds at a pace of $122 billion a month under its $3 trillion emergency response program. The bank left its main interest rate unchanged at minus 0.5%.
  • German factory orders in Europe’s biggest economy unexpectedly rose in July, driven by a surge in export demand for ships.
  • China’s export growth unexpectedly surged in August, with demand from the US and Europe showing resilience. The increase came despite disruptions at China’s 2nd largest port last month, which pushed up shipping costs.

Politics:

  • Japanese Prime Minister Suga said he plans to resign, a surprise decision ahead of a vote for party leader as a general election looms. He told a news conference that he won’t run for leader of the ruling Liberal Democratic Party, but whoever becomes leader of the party is almost assured of becoming prime minister due to the party’s dominance in parliament.
  • NSW looks set to reopen its international border once it hits a set vaccination target, regardless of whether or not the other states are ready. The NSW premier has also flouted a phasing out of “hotel quarantine” which she said has reached it’s “use-by date” in terms of how effective it is.
  • UK Prime Minister Johnson is facing a backlash from members of his own party over reports he’s planning a tax hike on workers to boost funding for social care. That was something the 2019 Conservative plan pledged not to do. The lines between the Left and the Right are getting blurrier by the day…..result will be the continued rise of minority parties with multi-party coalitions needed to form power. Pros and cons on both sides.
  • US corporates are scrambling to squash President Biden’s tax plan which includes lifting the corporate tax rate from 21% to 28%. Biden is looking to raise additional revenue from corporates and “wealthy” Americans to help pay for his massive social spending plans some of which include universal childcare, tuition-free community college, and paid family leave. 


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

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