Stocks hit new highs on central bank reassurances

Blog
Friday 16th April 2021

Stocks hit new highs on central bank reassurances

Blog
Friday 16th April 2021
Written by Chris Lioutas

Markets:

  • Local and global equity markets pushed higher this week, with the ASX 200 moving through its 2020 peak, well supported by improving economic data and central bank reassurance.
  • US S&P 500 earnings are expected to have jumped 25% in the March quarter from a year ago according to a data supplier. That would be the biggest quarterly gain since 2018, when tax cuts under former President Trump boosted profit growth. Earnings for the largest 600 listed companies in Europe are expected to jump 55% in the quarter.
  • In local stock news, Qantas provided an update saying they expect demand for domestic flights to be close to pre-Covid levels by the end of the year. They also plan on Australia’s borders opening in late October to allow travel beyond New Zealand. That may be a stretch.
  • Employment portal SEEK says it recorded the highest number of new job listings in its 23-year history over March, with job listings up more than 75% versus the same period in 2020. However, many of the new listings are for roles that were displaced in the last year.
  • The oil price rose strongly this week on increased global demand expectations as economic data continued to improve globally.
  • The Aussie dollar rose on US dollar weakness, as the US central bank continued with their dovish stance saying they won’t be reacting to any upcoming inflation strength.

Economics:

  • Australian employment surged by 70,700 in March, following an 89,100 increase in February, which saw the unemployment rate move down to 5.6% whilst the underemployment rate fell to 7.9%. The employment rise in March was a lot stronger than expected, but all the gains came from a big rise in part-time employment, with full-time employment actually falling in the month.
  • The Reserve Bank of Australia released their Financial Stability Review which exhibited a more positive stance than the last update in October. The review noted that the financial system, households, and businesses are in good shape but that pockets of risk remain evident. There was also no mention of the need for macroprudential measures to cool the housing market.
  • Both the Australian and US central banks reinforced their messages that they would remain patient before raising rates. The US central bank chair at an IMF event said the bank is not close to reducing support for the economy.
  • According to new analysis from Deloitte, international travel will not return properly to Australia until 2023, leaving parts of the economy exposed. With no international visitors and far few business travellers (due to the risk of getting stuck interstate because of power-mad state premiers), hotels in cities like Sydney, Hobart, and the Gold Coast are expected to take more than 3 years to fully recover.
  • A key monthly Australian business survey showed business conditions reaching a record high, despite the expiry of JobKeeper. There was however a fall in business confidence, but it still remains above average. The employment subcomponent rose strongly.
  • Australian consumer sentiment rose by 6.2% in April to its highest level in 11 years, with the strength in the labour market providing much of the boost. A weekly consumer confidence index jumped almost 6%, reaching its highest level since September 2019.
  • The US consumer price index rose by 0.6% in March, versus February reading, with the gain the largest since August 2012. The rise was largely expected.
  • Chinese consumer prices rose 0.4% in March versus the same time last year, coming in above expectations.
  • China’s trade rose strongly in March, with exports rising more than 30% from a year earlier, adding to signs that the global economy is recovering.

Politics:

  • Australia has ordered 20 million more Pfizer doses in light of last week’s changed guidance on the AstraZeneca vaccine for those under 50. Given the supply delays for Pfizer, the government’s vaccine program is unlikely to be completed until well into 2022. Johnson & Johnson also had their vaccine paused by US authorities on blood clot concerns. The Novavax vaccine is next in line and is significantly safer. But it still hasn’t been approved locally and there are also supply issues with this vaccine as well. Interestingly, but hardly surprising, the director of the Chinese CDC said that their vaccines don’t have very high protection rates and that they may need to consider mRNA vaccines like Pfizer and Moderna. However, he’s also on record as previously questioning the safety of mRNA vaccines.
  • Iran’s chief negotiator at the nuclear talks in Vienna said the sides were focusing on removing US sanctions in a single step but didn’t specify what Iran was offering in return. Fair to say the Iranians see a small window of American weakness they can exploit. The US responded to the statement from the Iranians that the US will only remove sanctions once Iran complies with the nuclear deal. That potential American weakness has also been sensed by the Russians with the Kremlin building up troops on the border with Ukraine, which has resulted in the Biden administration imposing new sanctions on Russia.
  • The race to appoint a replacement for the retiring Angela Merkel took a turn this week as the parties within her alliance split on who should be the coalition’s candidate for leader of the country. Officials within the party are concerned that any battle over her replacement could put them at risk of losing power.
  • China’s air force sent 25 fighters and bombers over the Taiwan Strait, the largest such dispatch this year, in a potential show of force as Taiwan continues to boost ties with the Biden administration. Chinese military activity has picked up around Taiwan.

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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