Mixed economic data dampens investor sentiment

Blog
Friday 21st May 2021

Mixed economic data dampens investor sentiment

Blog
Friday 21st May 2021
Written by Chris Lioutas

Markets:

  • Local and global equity markets struggled for direction this week as investors tried to digest mixed economic news.
  • First quarter US corporate earnings season neared its end with 87% of companies beating consensus estimates. Analysts now see earnings growth at more than triple the rate forecast at the beginning of the quarter, whilst in Europe earnings growth could be even stronger.
  • In local stock news, fuel providers Ampol and Viva Energy will retain their refineries after the federal government pledged funding to ensure fuel continues to be produced in Australia. The companies said the refineries will stay online until at least the middle of 2027 as long as the funds are provided.
  • Crown Resorts has knocked back US private equity firm Blackstone’s offer of $12.35 per share saying the proposal undervalues Crown. The company is still mulling over rival Star Group’s offer.
  • Fibre cement supplier James Hardie posted a 9% gain in full year net profit, boosted by US sales, with profit for the 12 months to March coming in a US$262.8 million. The company did make mention of hire input costs.
  • The iron price finally showed some signs of weakness this week but still remained very elevated. The surging price of late comes as the Chinese continue to stockpile ore and Brazilian mining giant Vale remains below full capacity. The Chinese stockpiling is raising geopolitical suspicions. 
  • The oil price fell as it appeared the US and Iran were closer to reaching a nuclear deal which would then remove sanctions on Iran allowing them to increase oil supply into the global market.

Economics:

  • In Australian economic data, the Australian wage price index rose by 0.6% in the 1st quarter, which was a little strong than expected, pushing the annual rate of growth up to 1.5%. Consumer sentiment fell in May but remains elevated, whilst unemployment expectations have moved lower consistent with the improving labour market.
  • New lending for Australian housing has fallen in April, partly offsetting the large rise in March. Over the year, new lending is still up more than 50%. The average loan size continues to rise whilst the most popular time horizon for fixed rate borrowing has switched from 4 years to 2 years. Personal and business lending both softened a little in June.
  • In US economic data, US retail sales disappointed with a flat April, industrial production rose but came in under expectations, whilst a key consumer sentiment index fell in May. US homebuilding fell more than expected in April, likely hurt by soaring prices for lumber and other materials.
  • Central bank officials both locally and globally have reaffirmed their stance that they expect to retain accommodative settings for some time. This means they will look-through the near-term surge in demand along with some transitory supply issues which will likely result in inflation printing higher and above target in the short term.
  • China’s economy moderated in April from its record 1st quarter expansion as retail sales missed forecasts, possibly suggesting that their recovery isn’t as strong as previously expected. Data also showed that China’s factories reduced their output, with growth falling to 10% from 14% in the previous month.
  • Computer chip shortages are getting worse having already hit the autos and consumer electronics industries, with the gap between ordering and take delivery increasing to 17 weeks. Explains why Taiwan remains a geopolitical hotbed.

Politics:

  • The public health officials at the US CDC finally broke free of political pressure and reverted back to the science after realising that vaccine take-up was waning due to their and the government’s very confusing messaging, ie. get the vaccine but you can’t go back to normal life. Some government officials who were seriously considering forced vaccines or payment for vaccines (we heard free beer, burgers, fries, and even lottery tickets) have now realised that freedom is the best reward. Who would’ve thought…We also saw easing restrictions throughout Europe, whilst Singapore entered a 4-week lockdown in contrast.
  • The Israelis and Palestinians negotiated a ceasefire after a significant escalation in the battle this week which threatened to broaden the battleground into other countries and potentially involve bigger actors (ie. Lebanon, Iran, Turkey, Russia, US, etc). Good to see a ceasefire for a conflict that was effectively started by a property disagreement between landlord and tenant, flamed by history, with fuel provided by the Biden administration’s ceasing of sanctions and restarting of foreign aid towards Palestine.
  • The Australian international student market could be in the midst of losing its historical advantage in China with education agents purportedly advising clients that the combination of closed borders, xenophobia, and safety concerns make it an unwise choice. No doubt fed by the Chinese Communist Party.
  • Anti-vax groups have exploded in Australia over the last 12 months new analysis has shown, with membership among core public groups almost quadrupling. Not helped by talk of vaccine passports and the pausing of the AstraZeneca vaccine following a very small number of blood clot cases and very low potential risks. In Melbourne, government officials attempt to “bribe” residents back into the city has gotten off to a rocky start with city foot traffic nowhere near pre-Covid levels. It’s going to take a long time for psychological repair for any city, state, or country that experienced lockdowns for the length of time Victorians did. 


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 concerns