Markets
Local and global equity markets moved higher this week on improved sentiment following a weak couple of weeks of trading.
In local stock news, the CEO of fund manager Magellan Financial Group is leaving for personal reasons. Brett Cairns has been the boss since 2019 but has been at the company since 2007. CFO Kirsten Morton has stepped in as the interim CEO. Investors didn’t like the uncertainty.
Oil and gas supplier Woodside will invest $5 billion in low carbon energy by 2030 while still benefiting from its proposed merger with BHP’s petroleum business, with the CEO maintaining she expects LNG to remain an important energy source for decades.
The proposed sale of Sydney Airport is a step closer after the competition watchdog chose not to stand in the way. Shareholders are expected to meet in February to vote on the sale.
Federal Treasurer Josh Frydenberg announced a policy overhaul to accommodate the digital payment revolution, which may force buy-now-pay-later customers to pay the fees currently borne by retailers. If so, that may spell trouble for the sector.
Chinese companies could soon be removed from US stock exchanges as the Securities and Exchange Commission moves to tighten existing rules, which would require foreign companies to open their books to US scrutiny. China has refused for over a decade to allow US inspectors to review audits of companies.
The Aussie dollar lifted off US70c lows on improving investment sentiment as new virus variant concerns subsided resulting in investors seeking out risk over safety.
Economic
The Reserve Bank of Australia has left the cash rate unchanged at 0.1% and maintained that they will continue buying government bonds at $4 billion a week at least until mid-February. Their December statement made it clear that they need to see inflation sustainably and consistently within their target range, along with full employment, before they even consider raising rates and will remain supportive of the economic recovery.
Australian employment fell by 2.3% and hours worked fell by 4.7% in the 3rd quarter. Job vacancies as a share of total jobs is at its highest level.
The US added just 210,000 in November, the smallest monthly jobs print since December 2020, and well below expectations of 550,000 plus, as employers continue to report difficulties in hiring and retaining workers. The unemployment rate dropped to 4.2% and the share of people either working or looking for work rose.
Investment bank Goldman Sachs has cut its outlook for US economic growth to 3.8% for 2022, down from 4.2%, citing risks and uncertainty around the emergence of virus variants. It’s more likely they’re concerned about uncertainty in the government health policy response (ie. restrictions) and the likely fiscal cliff (ie. government stimulus drying up) in light of President Biden’s declining popularity and struggles to get more of his fiscal spending plans through.
More evidence of hiring difficulties emerged in the US with the Labor Department’s latest US job openings and labour turnover survey showing 11 million job openings (verses expectations for 10 million) whilst 4.2 million workers quit their jobs in October seeking better conditions and pay. Workers making hay while the sun shines but need to be careful they don’t push too hard for when borders open and consumer demand falls.
The number of container ships headed for the busiest US port has risen to close to 100 under a new counting method. The new queuing and counting method actually pushed ships further out to sea (ie. pass the horizon) so they couldn’t be seen from the shore…. Surging demand (government stimulus) and supply bottlenecks are a toxic combination for inflation and longer-term economic growth, but recent manufacturing data is hinting at some sort of reprieve.
The European central bank president Christine Lagarde said the prospect of an interest rate increase next year is unlikely, but also pledged to act quickly on inflation should it become necessary.
Japan’s economy contracted slightly faster than initially reported in the 3rd quarter, as a private consumption was hit from concerns regarding a rise in virus cases whilst the global chip supply shortage soured corporate sentiment.
The Chinese central bank released more stimulus into their economy cutting the reserve requirement ratio for banks (ie. the amount banks must deposit at the central bank) by 0.5%, releasing some US$188 billion of liquidity.
Chinese factory inflation eased in November from the previous month’s 26 year high. Though the November reading was still high, and above economist forecasts, it looks like rising global costs may have peaked.
Politics
US and Russian officials attempted to calm tensions between the two nations this week. The US and their European allies have deep concerns regarding Russia’s plan for renewed aggression against Ukraine. Ally-led economic sanctions might be on the cards. Russia sees an opportunity given US and European distractions at home (perceived weakness on the foreign policy front) and given the current energy shortages plaguing Europe (with Russia a big energy supplier).
It appears Iran has abandoned any compromises it had made in talks to revive the 2015 nuclear deal with major powers and demanded even more, disappointing not only the US and its European allies but also China and Russia. Again, Iran sees an opportunity given domestic issues and distractions in many of the superpowers. Very hard to be strong at home and abroad for any lengthy period of time.
US government officials will boycott the Beijing Winter Olympics in February due to concerns of crimes against humanity and other human rights abuses. The US had called for others to follow suit, and that has now happened with Australian officials joining Britain and Canada in a diplomatic boycott.
Weekly market updates are written by Chris Lioutas. Chris is on the board of Peer Wealth X Futuro Investment Committee. View LinkedIn
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