28 May 2021
Stock tread higher on US economic growth data
Markets
- Local and global equity markets rose this week, ignoring inflation concerns, instead focusing on a confirmation of strong US economic growth and central banks re-confirming their policy support.
- Giant global oil producer Shell took a hit after a Hague court ordered the oil producer to slash emissions 45% by 2030, which the firm said it will appeal. Shell had previously pledged a 20% reduction by 2030 and to be net-zero before 2050.
- In local stock news, fruit and vegetable grower Costa Group shares fell sharply after the company outlined price pressures and a higher Australian dollar affecting overseas earnings.
- Fisher and Paykel Healthcare was unable to forecast earnings due to the unpredictability of the pandemic with the company reporting a full year profit up 82%, boosted by hospitals buying more supplies to combat the virus. Shares fell.
- Local transport stocks like Transurban and Sydney Airport fell following a snap 7-day stage 3 lockdown in Victoria. The move also hurt travel and tourism related stocks.
- Commodity prices came under pressure as Chinese officials declared a crackdown on rising commodity prices. The Chinese have had enough of being price takers in a world with plenty of stimulus driven pent-up demand and supply constraints.
- The oil price rose in light of stronger US demand and confirmation that the US economy is growing strongly.
Economics
- Australian retail trade rose by 1.1% in April, with spending on eating out showing a strong 2.5% rise, which was particularly strong in NSW. The rise for the month come in well above consensus and follows a 1.3% rise in March. NSW and Victoria saw the strongest rises in retail trade in April.
- Consumer sentiment fell from its 11-year highs in May, but remains very strong, with the largest falls coming from VIC, WA, and QLD, whilst sentiment remains elevated in NSW.
- Australian construction work done rose by 2.4% in the 1st quarter, with both building and engineering work stronger in the period. The quarter also saw a very strong 5.1% rise in residential construction boosted by work done for detached houses and renovations. Public engineering also saw a solid 3.1% rise. All states with the exception of VIC saw a rise in residential construction.
- The volume of Australian capital expenditure rose by a strong 6.3% in the 1st quarter, boosted by both mining and non-mining investment which rose 4.1% and 7.1% respectively. Business investment is clearly accelerating, supported by government and central bank policy along with tax incentives.
- The US economy expanded at an annualised pace of 6.4% in the 1st quarter, unrevised from the prior estimate released last month. Expectations were for slight revision higher. Consumer spending was revised higher, which was offset by stronger import growth. Economists now expect an even faster pace of growth in the 2nd quarter.
- Data showed US business activity picking up in May given strong domestic demand, but supply shortages in materials and labour are causing bottlenecks as uncompleted work piles up.
- Other US data showed the sales of new US single-family homes dropped in April as prices surged given tight supply. US consumer confidence appears to be holding its course at or near the highest reading since February 2020.
- Iceland delivered the first policy tightening in Western Europe to contain inflation and a soaring housing market, with the Bank of Canada also reducing some support and the NZ central banking flagging potential rate rises from mid-2022. Other major central banks remain committed to continued policy stimulus as they mainly see any near-term inflation as being transitory. However, they are watching data quite closely and will take adequate steps if required.
Politics
- Israel and Palestine agreed to implement a ceasefire in a deal brokered by the Egyptians.
- Germany announced fresh restrictions on travellers from the UK due to the apparent spread in Britain of the so-called Indian strain, whilst Japan extended their state of emergency for major cities until June 20. Closer to home, Victoria entered Stage 3 lockdown following a rise in cases. The VIC government has indicated 7 days length, but the people know better than that. All states have since closed their borders to VIC with the exception of NSW, whilst NZ has also suspended quarantine-free travel from VIC.
- Rising Covid cases in Taiwan, with only about 1% of its population immunised so far, and a dispute with China over vaccine access is threatening to trigger an island-wide lockdown, which would create further supply constraints in the semiconductor industry.
- Rumours in the US that Democrats are pairing down plans for President Biden’s tax increases, wary that Republicans would have field day if higher tax rates damaged economic growth (which they will). More than 8 million Americans remain without a job and will continue to receive unemployment benefits until September.
- The European Union (EU) is furious with Belarus over what they’ve called the “hijacking” of a Ryanair jet and the arrest of a dissident Belarussian journalist. Belarus authorities made up a bomb threat to have the Ryanair jet grounded before storming the plane to arrest the journalist. EU members have called for sanctions on Belarus.
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