11 Sep 2020
Tech sector gets the wobbles as profit taking continues
Markets
- Local and global equity markets largely fell this week as profit taking and concerns regarding technology company valuations continued.
- Tesla shares plunged during the week after index provider S&P decided not to include Tesla in its benchmark index, the S&P 500. Instead, S&P approved three other companies for inclusion. S&P didn’t explain its selection criteria.
- Virgin creditors have approved the airline’s $3.5 billion purchase by Bain Capital. The deal will see unsecured creditors return of 9-13 cents in the dollar, whilst Virgin will cut about 1/3rd of its workforce and return to its budget carrier roots. They will cede some market share to Qantas as it exits unprofitable routes.
- ANZ Bank’s CEO Shayne Elliott told a Senate enquiry that he expects banks to feel the worst of the pandemic in the middle of next year, with the economy likely to be at its low point between now and the end of 2020, which will flow on to the banking sector.
- Scentre Group, which owns and runs Westfield shopping centres, has collected 86% of rent from tenants for August, an improvement on the 82% collected in July and significantly higher than the 35% collected in May. Commercial landlords have asked the government to lower the threshold for tenant eligibility for rental deferral / relief from $50 million turnover to $10 million so that tenants aren’t gaming the system.
Economics
- Australian retail trade rose by a very strong 3.2% in July, which saw annual growth accelerate to 12%. Turnover for the month was 12% higher than the same time last year. Household goods and food retailing saw the biggest rise. Most household goods are imported so of little benefit to the economy. Fair to say JobKeeper and JobSeeker are creating a false economy. It will be interesting to see how those numbers land in the next two quarters given the 1st and 2nd phase of tapering in those payments, along with the early withdrawal of super now behind us.
- According the latest ABS data, total payroll jobs have fallen by 0.5% over the 4 weeks to 22 August 2020. Payrolls were up in NSW, down in QLD, and significantly down in VIC.
- Australian business conditions fell as profitability and employment components all deteriorated and remain in negative territory. Within this survey, employment sits at its weakest level since May showing a weaker employment market than the ABS payrolls data. Business confidence improved but remains in negative territory.
- The Commonwealth Bank has revised down its forecast falls in the residential housing market from their April predictions of a 10% fall. Their new forecast is a peak to trough fall of 6%, with the bottom arriving in Q1 2021. House prices are already down around 2% based on the national average, with significant variance between states. The bank expects the variance between capital cities outcomes to get wider from here.
- The value of new lending for housing rose by 8.9% in July, with lending back close to where it was pre-virus. Personal lending remains very soft. Consumer sentiment rebounded by 18% in September, a big surprise, with job security fears retreating by close to 15%
- Data showed the number of Americans filing new claims for unemployment benefits fell more than expected last week, but remained high, whilst a key employment report showed the US jobless rate improve to 8.4% from 10.2% in July. Another survey showed that US services industry growth slowed in August.
- German industrial output rose far less than expected in July, leaving output still well below its pre-virus level. Production is likely to have increased again in August, but at a much slower pace.
- Data showed German exports rose in July but remained well below pre-virus levels. Figures also showed that the Eurozone economy declined slightly less than estimated in the 2nd quarter but was still the sharpest ever fall.
- China’s exports rose for the 3rd consecutive month in August, with the biggest monthly increase in nearly 18 months, as more of their trading partners relaxed virus lockdowns. Imports fell sharply as Chinese domestic demand remained sluggish. Iron ore imports fell almost 11% from July but remain up from a year earlier on strong steel demand.
Politics
- Australian Federal Treasurer Josh Frydenberg has suggested that tax cuts and JobMaker (ie. worker retraining) will do most of the heavy lifting when he unveils the budget in October. He also mentioned that jobs were coming back outside of Victoria, with 700,000 of the 1.3 million who lost their job or saw their hours reduced earlier in the year now back at work.
- Geopolitical risks rose between Germany and Russia following the suspected poisoning of Russian opposition leader Alexey Navalny. The Germans took Navalny in for treatment and then cited poisoning as the reason for his falling ill. Fair to say Russian leader Putin wasn’t impressed. The incident has seen German calls for the new natural has pipeline being built under the Baltic Sea from Russia directly to the German coast to be stopped.
- US President Trump again raised the idea of separating the US and Chinese economies, also known as decoupling. The way Trump sees it is that the US loses money whether they do or don’t do business with the Chinese, so he’s threatening to go it alone. Deep down he knows it’s not that binary an outcome but took the opportunity to exert added pressure on the Chinese whilst warning that a Joe Biden victory will hand the US to China.
- Brexit risk is back on after the UK and EU fail to agree on a trade deal with a looming year-end deadline. Without a trade deal, the compromise agreed to at the end of last year would be put at risk, with a hard border on Ireland and no access to the EU market.
- Virus contraction rates are rising across Europe as restrictions have been lifted with Europeans thoroughly enjoying their summer holidays. Despite the rise in cases, borders remain open, whilst death rates remain low as the old and sick better protect themselves and as health systems are better prepared and willing to use effective treatments. A phase 3 vaccine study was paused after one trial participant had a serious reaction. The reaction won’t be enough to stop this trial.
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