Market, Economic and Political Snapshot in Jan 2021
Market, Economics and Politics
Equity markets rallied strongly this week, boosted by improving investor sentiment and comments from key officials supporting more fiscal stimulus.
In local stock news, discretionary retail operators Super Retail Group and JB Hi-Fi announced extremely strong preliminary half-year figures with Super Retail expecting profits to rise by up to 201% whilst JB Hi-Fi indicated an 86% rise in profits over the same period. No doubt assisted by JobKeeper / Seeker, lockdowns, and travel restrictions.
Premier Investments retail boss, Mark McInnes, has told the company he will leave with 12 months’ notice given. He is widely considered as one of the best retailers in the country so Premier chairman Solomon Lew will have his work cut out for him to find a replacement.
Rio Tinto reported a 2.4% rise in 4th quarter iron ore shipments, helped by industrial activity in China. BHP raised its iron ore production target for the financial year having recently restarted a mining operation in Brazil.
Australian consumer sentiment fell by 4.5% in January but remains in positive territory. The fall in January was due to increased travel and lockdown restrictions. Sentiment related to housing remains strong whilst unemployment expectations bounced higher in January.
Australian employment rose by 50,000 in December following very strong job increases in October and November. The December increase saw the unemployment rate fall to 6.6% even with a rising participation rate. The strongest job gains in December came from QLD and VIC. Part-time employment is higher than March whilst full-time employment remains 1.3% below March levels. The recovery in hours worked has been slower. The underemployment rate also decreased to 8.8%. Jobs protected by JobKeeper fell from 3.6 million to 1.5 million in October.
New lending (excluding refinancing) for Australian housing rose by 5.6% in November to reach new highs. The volume of new lending growth was similar for both owner occupiers and investors. The value of new construction also grew by 5.6% in November, whilst personal lending bounced more than 15% in the month. New lending to owner occupiers for the construction of new dwellings is now up almost 75% since July 2020.
New homes sales almost doubled in December compared to November, with the HomeBuilder grant supporting the strong rise.
The US central bank chairman reiterated their position on inflation indicating they’d be comfortable with tight labour market conditions spilling over into inflation and would only consider rate rises if inflation was sustained above 2% for some time. The chairman also made clear that they are not considering any tapering of their quantitative easing program and have learnt from their early/fast withdrawal in 2013.
Data showed a further decline in US retail sales in December in the latest sign the US economy lost considerable speed at the end of 2020. Jobs data was also very weak in the same period. Increased lockdown restrictions and delay in new stimulus were the likely causes.
The number of Americans filing new applications for unemployment benefits dipped to 900,000 last week but remained stubbornly high. Other data showed strength in the housing and manufacturing sectors.
The European Central Bank (ECB) reconfirmed its very accommodative policy stance at its January meeting. The governing council expects the key rates to remain at their present or lower levels until inflation is close to or at 2% for a sustained period of time.
The Chinese economy expanded at 6.5% in 4th quarter versus the same period in 2019, coming in above economist forecasts for 6.1% growth. The boost was assisted by government stimulus and manufacturing.
On the virus/vaccine front, further evidence this week that supply is struggling to keep up with demand with both Europe, and now the US, looking at administering as many people as they can with the 1st dose by delaying the 2nd dose as long as possible. This would mean more people with roughly 50% immunity, but significantly less people with 90-95% immunity. Given the desperation, it makes sense. But the science doesn’t. At the same time, both France and Germany are considering extending and increasing lockdown measures, whilst UK PM Boris Johnson is facing risks to his leadership without a clear path for the country to exit lockdown.
President Biden has begun his term with up to 15 executive actions which will reverse some of Trump’s key policies. These include re-joining the Paris climate agreement and the World Health Organisation, stopping construction of the Mexican border wall, ending the travel ban against some predominantly Muslim countries, and revoking the permit for the Keystone XL pipeline into Canada. Biden’s US$1.9 trillion fiscal relief plan will need 10 Republicans to cross the floor, which is unlikely, for it to have swift passage into law. President Biden also sent his staff home on their first day in office and instructed other government departments to encourage further work from home.
Ex-US central bank chair Janet Yellen was easily confirmed as the next US Treasury Secretary. A very strong appointment. She’s advocating for a significant fiscal relief package saying that the benefits of the stimulus would outweigh the costs of a higher debt burden.