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Global recovery continues despite employment weakness in the US.

Welcome back to the 2021 edition of the Weekly Market Update. Here’s to hoping 2021 brings with it an effective COVID-19 vaccine and with it far less volatility that plagued global share markets last year.

Fortunately, the obscene storming of the US Capitol on January 6 did little to deter investment markets with the S&P 500 currently up +0.3% in January. However, it does highlight just how divided Americans are with the propensity for these protests to turn this violent so quickly a clear sign of this.

With Biden’s inauguration this Wednesday there remains great uncertainty as to the actions of Trump’s loyal supporters, however, we have some faith that once change is enacted these protests will subside.

The hope is that Republican supporters can patiently bide their time the same way Democrat supporters have these past four years but time will tell.

With the US Senate not meeting until Tuesday Trump’s second impeachment trial will now take place once he has left office so despite the headlines this is now largely irrelevant.

In terms of market direction, the Democrats winning both Senate seats in the Georgian run-off election a fortnight ago was significant. Whilst most analysts had formed the view that a Republican victory which would have ensured a divided government would be most beneficial for markets there is another view.

The incredible rally in global equity markets post March last year was primarily a function of government stimulus and loose monetary policy. With the Democrats taking the White House, the House and now the Senate there is significant runway for further stimulus packages to be passed unopposed.

It is for this reason we remain cautiously optimistic for risk assets (equities) in 2021.

Whilst the major near-term catalyst for investment markets continues to be the effective rollout of a vaccine, additional stimulus will continue to act as a backstop for struggling families and reignite the global economy.

In Australia, the RBAs highly accommodative monetary policy stance, a firm commitment to its QE program, backdated tax cuts and a large cash deficit are all aimed at propelling the economy out of the COVID-19 induced recession.

Locally, the key risk to our cautiously optimistic tone for 2021 centres on business relations deteriorating further with China whilst a strong AUD makes exports less attractive to foreign buyers and the RBA has been very clear in its preference for a lower AUD.  

US Jobs

Latest figures for jobless claims issued by the Labor Department show unemployment in the US is on the rise.

965,000 new applications seeking aid were filed last week which is more than 4x the typical weekly applications filed pre-pandemic. Last week’s recorded jobless claims were the highest since late August and points to increased layoffs in Q4 due to an increase in COVID-19 cases in the US.

This follows the December US labour market report which shows the US economy shed 140,000 payroll positions in December compared to expectations of -37,500.

Whilst the unemployment rate held firm at 6.7% and the headline number was poor, the positive revision upwards of the prior two months mitigated the overall damage to some extent.

The economic recovery’s slowdown followed consumer confidence numbers dropping to a four-month low in December with a spike in COVID-19 cases causing conditions to deteriorate despite significant progress being made in the rollout of a vaccine.

In an effort to combat the slowdown a US$900b stimulus bill was finally agreed to by both Republicans and Democrats although this is likely to be trumped (no pun intended) by the next round of Biden stimulus.

With the Democrats now controlling the Senate this US$900bn stimulus is likely to be a precursor to the next round of stimulus which is rumoured to be in the vicinity of US$2tr.

At a stock level growth stocks as represented by the FAANGs have started 2021 weaker with Facebook (FB) and Netflix (NFLX) down 7-10% and Amazon (AMZN), Apple (AAPL) and Google (GOOG) falling between 1-4%. Demand for Tesla EV vehicles continues to surge with the stock up +20% month to date.

Q4 earnings season kicked off last Friday with results from JP Morgan, Citigroup and Wells Fargo soft on account of weaker revenues. Further intel will be delivered over the next fortnight with Microsoft, Tesla, Apple and others due to provide updates.

China CPI

China’s economy continues to show strong signs of recovery with December’s consumer inflation print of 0.2% far outpacing forecasts.

Economists had expected the consumer price index to print a flat year-on-year number compared to a -0.5% fall in November. Among the main drivers, food prices climbed from a -2.4% fall in November to an increase of +2.8%.

The steady recovery of domestic demand and increase in prices for some international bulk commodities were other driving factors.

Further strength in the Chinese economy was also highlighted with December’s year-on-year exports rising   +18.1% outperforming expectations of a +15% rise whilst consumer demand continues to rebound with imports climbing +6.5% vs expectations of +5.7%.

Growth in these leading indicators is key to the continued rebound of the global economy.

Australian Retail Sales Data

Closer to home and retail sales climbed +7.1% in November which was marginally ahead of forecasts which had retail sales bouncing +7%.

Importantly, this was a significant increase on the prior month’s +1.4% rise and demonstrates the sustained rebound in consumer demand as the country and particularly Victoria emerged from COVID-19 lockdown restrictions. 

November tends to be a more active period for retail sales with the Christmas season approaching as well as Black Friday and Cyber weekend sale events.

ANZ consumer confidence data released last Tuesday also showed confidence was holding steady. January’s data was virtually unchanged from December’s release which showed the index had reached a 10-year high.

ASX

The Australian share market was weaker last week falling -0.6% as weak jobs data in the US dented global sentiment.  

The energy sector fared best rising +4% to build on last week’s +8% gain which followed a +8.5% rise in the oil price as Saudi Arabia pledged to cut output.

Energy giants Woodside (WPL) and Oil Search (OSH) were major beneficiaries rising +7.9% and +3.3% respectively whilst Santos (STO) rose +6% to take its 2021 gains to +18%.   

The best performing stocks in the ASX200 index last week were Pro Medicus Limited (PME) and Afterpay (APT).

Medical imaging software company PME climbed +17% after announcing it signed a seven-year contract worth $40m with Intermountain Healthcare. The deal is PMEs fifth major contract win in the past six months and sees two core products implemented across Intermountain’s radiology imaging departments.

APT shares added +15% on the back of rival buy now pay later (BNPL) company Affirm (AFRM) which listed on the NASDAQ exchange this week and doubled in value on its first day. Bullish sentiment and a broker note upgrading APTs stock price were the major catalysts for its strong run.

Incredibly APTs market cap is now bigger than Telstra.

Of our core holdings Westpac (WBC) was the biggest contributor to performance last week rallying +5.3%. A leading broker upgraded their price target by +9% and further confidence that last year’s muted dividends across the major bank stocks are likely to have been a one-off continues to see renewed buying.

Lastly, Saracen (SAR) shareholders overwhelmingly approved the Northern Star (NST) merger last week with the combined companies expected to create a top ten global gold producer once finalised.

Looking ahead

Monday 18th January – Friday 22nd January 2021

• Monday: CN GDP Growth Rate Q4, Unemployment Rate (DEC), Retail Sales (DEC)
• Tuesday: AU New Home Sales (DEC)  
• Wednesday: AU Westpac Consumer Confidence (JAN), US Joe Biden’s Inauguration, UK Inflation Rate (DEC)
• Thursday: AU Unemployment Rate (DEC), Consumer Inflation Expectations (JAN)
• Friday: US Building Permits (DEC), Weekly Jobless Claims

Friday 15th January, 5pm values

Friday 15th January, closing values

Key dividends

Monday 18th January – Friday 22nd January 2021

• Monday: Div Ex-Date – Plato Income Maximiser (PL8)
• Tuesday: Div Pay-Date – Betashares Legg Mason Australian Bond Fund (BNDS), Vanguard Australian Fixed Interest ETF (VAF), Vanguard Australian Shares ETF (VAS), Vanguard Australian Government Bonds ETF (VGB), Vanguard MSCI Index International ETF (VGS), Vanguard Australia Small Companies ETF (VSO)
• Wednesday: Div Pay-Date – Ardea Real Outcome Bond Fund (XARO)
• Thursday: Div Pay-Date – Charter Hall Infrastructure REIT (CQE)
• Friday: Div Pay-Date – VanEck Australian Subordinated Debt ETF (SUBD) Vanguard International ex-US ETF (VEU)

Contact

If you would like to discuss your situation, please speak to your adviser or email clientservices@primefinancial.com.au

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