Weekly Market Update – 29 Mar 2021

Markets stronger with more stimulus a possibility.

Global equity markets climbed higher last week as the run in to the end of the March quarter provided an opportunity for portfolios and fund managers to adjust exposures and allocations.

The MSCI World Index advanced +2.3% in AUD terms and has so far rallied +5% for the month on the back of additional fiscal stimulus in the US which continues to be deployed in an effort to combat the negative impacts of COVID-19.

Consumer spending in the US in February fell by the most in 10 months as a cold snap swamped many parts of the country preventing consumers from leaving their homes and physically spending.

Consumer spending accounts for more than two thirds of US economic activity so February’s -1% fall following January’s +3.4% rebound was severe having not experienced such a poor month since non-essential businesses were closed to slow the spread of COVID-19 in April last year.

Despite the weak data, economists had largely predicted this would occur as the second round of stimulus cheques to middle and lower income households faded.

The positive news is that this is widely regarded to be a temporary correction with activity anticipated to rebound in March as the northern hemisphere emerges from the depths of Winter and the White House’s most recent $1.9t stimulus package hits the bank accounts of many Americans.

On an annualised basis inflation remains soft with the personal consumption expenditures (PCE) index rising +1.4% through February. We expect this data will improve in the coming months as we drop off last year’s weak recordings from February and March.

Whilst the data looks likely to improve with the economy forecast to grow by up to +7.5% this quarter after last quarter’s +4.3% expansion, there is still a long way to go. The Federal Reserve reiterated that whilst the economy is “much improved” unemployment and subdued inflation mean the recovery is far from complete.

Is more stimulus coming?

Details emerged of yet another economic package being drafted by Biden’s economic advisors this week, just weeks after the US$1.9 trillion economic stimulus package was passed earlier in March.

The latest proposal could see upwards of US$3 trillion and aims to boost the economy through investment in infrastructure, education, and combating climate change. 

The proposal if passed will likely include two parts – key domestic economic issues in what is being called the “care economy” and the other on infrastructure and clean energy.

The $3 trillion package would like face heavy opposition from Republicans for increasing liquidity in markets, but it would almost immediately put a stop to investor concerns that the economy is beginning to overheat and that fiscal support is likely to be withdrawn in the short term.

Weekly Wrap

The Australian dollar fell -1.5% last week having now retreated from 80c just over a month ago to trade 76.5c against the USD. Part of last week’s weakness can be attributed to investors who have loosened expectations for higher interest rates domestically.

The recent pull back in the price iron ore which has fallen from $178/tonne to $161/tonne throughout March has also contributed to some of this AUD weakness.

Pleasingly, the PRIME International Growth SMA recently switched some of our hedged international equity exposure to unhedged believing the AUD was looking relatively full around the 80c level.  

Yields on 10-year Australian Commonwealth Government bonds tightened from 1.80% to 1.65% as further commentary from the Reserve Bank of Australia showed the likelihood of any rate rise before 2023 to be minimal.

The ASX200 added +1.7% last week rising four out of five days.

Best performing sectors were healthcare which rose +5% and telcos which climbed +3%.

Telstra (TLS) was a notable outperformer last week climbing +6% to trade a 7-month high following its corporate restructure announcement.

TLS announced its intention to unlock value for shareholders by separating into four autonomous divisions by December, each housing a different portfolio of assets being InfraCo Towers, InfraCo Fixed, ServeCo and Telstra International.

Another reason the TLS share price has rallied 10% in the past fortnight is due to its attractive 16c per share dividend. Rising bond yields makes companies with strong dividends and free cash flows like TLS more attractive to shareholders.

Also worth mentioning was the $8bn takeover bid for Crown Resorts (CWN) which received a bid from US investment manager Blackstone.

The indicative bid price of $11.85 per share represented a 20% premium to the previous closing price of CWN shares prior to the offer and is subject to a number of conditions.

We believe it is in shareholders best interests to sell CWN holdings at current market prices. The Victorian government’s inquiry into Crown along with the potential for the offer to be withdrawn are key risks that we believe outweigh any potential that a higher bidder emerges.

On a disappointing note, TPG Telecom (TPG) saw its director and chairman David Teoh announce his retirement on Friday.

Teoh, who founded the company in 1986 as an IT company before providing mobile an internet services resigned effective immediately in order to pursue other interests. Naturally, TPG shares were sold off on Friday falling -7.4%.

Looking ahead

There will be no update next week due to the Easter break, but we wish you all well and will see you back in a fortnight.

Monday 29th March 2021 – Friday 2nd April 2021

  • Monday: UK Bank of England Consumer Credit (FEB)
  • Tuesday: N/A
  • Wednesday: AU Private Sector Credit (FEB), CN Non-Manufacturing PMI (MAR), US House Price Index (JAN), UK GDP Growth Rate Q4
  • Thursday: AU Balance of Trade (FEB), Retail Sales (FEB), CN Caixin Manufacturing PMI (MAR), US Weekly Jobless Claims
  • Friday: US Non Farm Payrolls (MAR)

Friday 26th March, 5pm values

 IndexChange%
All Ordinaries 7063+103+1.5%
S&P / ASX 2006824+116+1.7%
Property Trust Index1426+36+2.6%
Utilities Index6397+218+3.5%
Financials Index6072+29+0.5%
Materials Index15787+195+1.3%

Friday 26th March, closing values

 IndexChange%
U.S. S&P 5003974+61+1.6%
London’s FTSE6741+32+0.5%
Japan’s Nikkei29177-615-2.1%
Hang Seng28336-655-2.3%
China’s Shanghai3418+13+0.4%

Key dividends

Monday 29th March 2021 – Friday 2nd April 2021

  • Monday: Div Ex-Date – NABPD (NABPD), Reece Limited (REH)
  • Tuesday: Div Ex-Date – Charter Hall Long Wale REIT (CLW), Cromwell Property Group (CMW), Qualitas Real Estate Income Trust (QRI)
    Div Pay-Date – BlueScope Steel Limited (BSL), Commonwealth Bank of Australia (CBA), Insurance Australia Group (IAG), Northern Star Resources (NST), WBCPG (WBCPG)
  • Wednesday: Div Ex-Date – Metrics Master Income Trust (MXT), Metrics Income Opportunities Trust (MOT)
    Div Pay-Date – Bendigo Bank (BEN), Ramsay Healthcare (RHC), Wesfarmers (WES)
  • Thursday: Div Ex-Date – Ardea Real Outcome Fund (XARO)
    Div Pay-Date – CSL (CSL), Suncorp Group Limited (SUN)
  • Friday: N/A

Contact

Mark Johnson – Chairman of Investment Committee(03) 8825 4738
Guy Silbert – Investment Manager(03) 8825 4750

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

Mark JohnsonT: (03) 8825 4738Cameron MorcherT: (03) 8825 4737
Livio Caiolfa T: (03) 8825 4748Michelle BromleyT: (03) 8825 4751
Marcus AingerT: (02) 9134 6292Nicole LewisT: (03) 8825 4734
Dylan CresswellT: (03) 8825 4707 Nicholas Miller T: (03) 8825 4722
Jarrod Rodda T: (03) 8825 4729

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.

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