Potential US tax increases slow market gains

Blog
Friday 23rd April 2021

Potential US tax increases slow market gains

Blog
Friday 23rd April 2021
Written by Chris Lioutas

Markets:

  • Local and global equity markets took a breather this week as rising virus cases and potential US tax increases gave investors a reason to take stock.
  • In local stock news, Crown Resorts shares rose after James Packer’s private investment company agreed to give up board seats at Crown until 2024, under a new deal with the NSW regulator which may assist in trying to win the licence for the second Sydney casino. Crown then received a $3 billion funding proposal from Oaktree Capital Management with the proceeds to be used to buy back some or all of the Crown shares owned by Packer’s company. 
  • Coca-Cola Amatil announced that independent shareholders voted for Coca-Cola Europe’s takeover offer. The European company is offering $13.50 per share, which will require court and other approvals.
  • Australian lithium miners Galaxy and Orocobre proposed a $4 billion merger the companies claim would create the 5th largest lithium miner in the world.
  • Rio Tinto said that 1st quarter iron ore shipments rose 7% as an uptick in economic growth and industrial activity in China boosted demand. However, ore production fell versus the same period last year as wet weather and labour shortages impacted its mine and port operations in Western Australia. BHP also reported less production due to bad weather and planned maintenance impacts, but with the iron ore price at meteoric highs it’s fair to say both RIO and BHP remain comfortable with the outlook.
  • The oil price fell on reports that an Iran nuclear deal may be imminent which would take the US sanctions off Iran’s oil exports thus adding to world supply.

 

Economics:

  • The Reserve Bank of Australia’s April board meeting minutes confirmed the bank is more upbeat on economic activity, but less convinced on how quickly this will spill over into wages and inflation. The bank also noted that its term fund facility, which provides cheap credit to banks, still has $95 billion to be drawn down until end of June, at which date the facility will likely end unless conditions worsen. The bank also confirmed that they don’t expect to raise rates until 2024. Whilst not mentioned, a 3rd round of quantitative easing (money printing) is likely to be announced in June/July.
  • National Australia Bank has revised upwards its forecast on median house price rises by year end with a spike in excess of 10%. The revision brings the bank closer to the predictions of the big 4 with CBA and Westpac at 16% and 20% respectively for the year. Sydney’s median home price is now at $1.11 million. A toxic, or happy, mix (depending on whether you own property or not) of low rates, government grants, and FOMO (fear of missing out).
  • Domestic passenger numbers on flights have almost completely recovered to pre-Covid levels with very strong demand for leisure, whilst business travel is recovering at a much slower pace given use of technology for meetings and still lingering concerns regarding border restrictions. International travel remains problematic, with new delays in the role out of the vaccine pushing the likely start date for international travel even further back.
  • A preliminary estimate of Australian retail trade showed a 1.4% uplift in March, whilst the annual rate of growth fell as the very large March 2020 print rolled off. The lift in March as stronger than expected, led by VIC and WA as both states rebounded from Covid restriction in February. QLD was likely negatively affected by the increased restrictions in March.
  • A poll of economists showed that the Eurozone economy will recover at a much weaker rate this quarter than expected only a month earlier, mainly due to slower vaccine rollout. In other European news, the ratings agency Fitch said it could take Italy at least a decade to get their debt to economic growth ratio back to pre-Covid levels.
  • The European Central Bank indicated it was in no rush to taper its emergency bond purchases, as it left its cash rate at 0%, and said it would stick with plans to accelerate bond purchases until March 2022.
  • The Chinese economy grew by more than 18% in the 1st quarter with Chinese retail sales soaring 34% in March alone. Worth noting these numbers are off a low base, though the Chinese economy had regained all lost ground by the end of September 2020 and with strength now appearing in the housing market.

Politics:

  • The Australian federal government has unsurprisingly torn up 4 deals between Victoria and foreign nations, including the state’s Belt and Road Initiative agreement with China, prompting strong rebuke from the Chinese embassy. It’s the first time the federal government has used these new powers.
  • Virus case numbers continued to rise in some parts of the world led notably by Europe and India, whilst case numbers and death rates remain high in Brazil. India is vaccinating at a pace of 3-4 million per day. The pause in the AstraZeneca and Johnson & Johnson vaccines hasn’t helped. Either has under-resourced and under-invested in healthcare and hospital systems along with inconsistent treatment guidelines. It’s also likely that many have simply had enough of the significant changes to their lifestyles with strict government restrictions in place and are flouting these same restrictions. Somewhat confirming this is news that uptake in vaccines may be waning in the USA with 1 in 3 doses unused in some states.
  • Tensions between the US and Russia rose after President Biden’s administration imposed new sanctions on Russia in retaliation for alleged misconduct related to US election meddling and cyber hacking. Russia shrugged off the sanctions and said it too was ready to retaliate.
  • A US congressional push to counteract China appears to have bipartisan support and is gaining steam as a senate committee strongly backed a bill pressing China on human rights and economic competition, whilst other lawmakers introduced a measure seeking billions for technology research.

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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