Weekly Market Update – 1 November 2021

A week of busy earnings, though stocks continue to gain

Global equity markets continued their charge higher last week notching a +0.22% gain as represented by the MSCI World Index in AUD terms.

Internationally, last week was the single busiest of the US’s third-quarter earnings report with the majority of the FAANG tech giants (Facebook, Amazon, Apple & Alphabet) reporting their earnings to market.

All three of the major U.S indexes responded well to the earnings data released, which further bolstered investor confidence and translated to both the S&P 500 and Nasdaq indexes recording new all-time highs.

EV maker Tesla (TSLA) shares surged over 12 per cent on Monday after news broke that car rental company, Hertz, placed a bulk electric vehicle order of 100,000 vehicles.

As a result, Tesla’s market capitalisation is now worth over USD$1 trillion, with it now joining the other 5 elite companies in US history to reach these lofty valuations.

AU Inflation Data

Inflation seems to be here, but is it here to stay?

Last week, data from the Australian Bureau of Statistics (ABS) revealed that inflation rose by 0.8 per cent for the September quarter or 3 per cent on an annualised basis, this was largely in line with economist forecasts.

The primary contributors were via a jump in fuel prices, which rose 7.1 per cent in the September quarter and a further increase in dwellings prices of 3.3 per cent as the continual surge of construction activity mixed with supply bottlenecks continue to drive up prices.

With that said, The Reserve Bank of Australia’s tends to pay more attention to its preferred trimmed-mean inflation figure, which is thought to better measure the nation’s underlying core inflation rate via stripping out portions of volatile components.

Through this measure, trimmed-mean CPI rose by 0.7 per cent for the September quarter translating to an annual increase of 2.1 per cent.

This is the highest core inflation rate Australia has seen in over six years.

Importantly, this inflation figure now sits within the RBA’s target for monetary policy of a sustainable 2 to 3 per cent inflation rate, which may enable the cash rate to be lifted from the current historical lows. It will be interesting to see how the RBA reacts to this inflationary data in its next board meeting on Melbourne Cup Day, as Lowe’s original timeline of ‘no rate hikes until 2024 at the earliest’ may be challenged with the likes of the bond market already forecasting the cash rate to rise well before then.

The good & the bad from the US

The US’s economic growth saw a sharp slowdown in the quarter just gone by.

Gross domestic product (GDP), which measures the total of all goods and services that have been produced by a country’s economy showed that the US’s figure grew by 2 per cent from July to September on a seasonally adjusted basis. Economists had forecasted GDP growth to land at 2.7 per cent, so the actual figure is far lower than expected, especially when compared to the growth rates logged by the US of 4.5 per cent and 6.7 per cent in the first and second quarters.

Looking further into the report, the underwhelming figures were largely because of two factors.

Firstly, waves of the highly infectious COVID-19 Delta strain continue to impact the US, despite new COVID-19 case numbers being nearly 60 per cent down in total.

Secondly, supply-chain issues caused by COVID-19 continue to linger with large cargo backups at U.S ports and raw material shortages continuing to fail to keep up with demand.

Despite this, job data out from the US last week displayed a stark contrast to the above.

Jobless claims out from the US last week indicated further signs of further economic recovery as the number declined to the lowest level since the pandemic started, with 281,000 Americans filing for unemployment benefits.

For reference, US jobless claims topped over 900,000 in January of this year.

MQG Earnings

First-half results out from Macquarie Group Limited (MQG) last week were solid, to say the least.

Net profit from the investment bank more than doubled to $2.04 billion which was up 107 per cent on the prior corresponding period and was a 6 per cent beat on analyst estimates.

Stronger net profit gains were largely driven by the Sydney-based bank’s Commodities and Global Markets (CGM) division which saw an underlying 60 per cent gain in profit thanks to the recent volatility in the commodity market which the firm has benefitted from.

Macquarie’s assets under management (AUM) also grew healthily to $737 billion for the September quarter, which is up 31 per cent on March’s figure of $563.5 billion.

Further to this, MQG also announced to market a capital raise comprised of a $1.5 billion-dollar institutional placement and share purchase plan which will provide further flexibility to invest in new attractive opportunities that arise.

ASX Weekly Wrap

The ASX200 remained relatively flat for the week, though Friday’s rough trading session saw the index fall over -1.3 per cent with all sectors closing lower.

Bond yields were at the forefront of investors’ minds on Friday, as market participants observed the Reserve Bank of Australia’s decision to pass on the opportunity to purchase April 2024 treasury bonds.

For reference, the RBA’s target yield for the April 2024 bond is 0.1 per cent, but on Friday’s trading session it jumped up to a high of 0.69 per cent.

Investors now remain cautious as these signs may indicate a cash rate hike sooner rather than later.

In terms of sectorial based performance, the strongest sector was Healthcare which gained 1.3 per cent for the week whilst the worst performer was the Energy sector which fell nearly 3 per cent.

We continue to employ a defensive positioning within our core portfolios, with a strong presence in healthcare and consumer staples through the likes of CSL Limited (CSL), Healius Limited (HLS) and Woolworths Group Ltd (WOW).

Key market news for the week gone by saw the likes of Telstra Limited (TLS) announcing its acquisition of South Pacific telco operator Digicel for $2.1 billion which Telstra will partly fund via equity, though the bill will be primarily funded by Australian taxpayers.

Lithium explorer Vulcan Energy Limited (VUL) was placed in a trading halt after a short-seller report was published online which accused the company of disclosing misleading information to investors.

The company ultimately rejected the claims stating that the short seller’s claims were baseless, despite this, investors were not impressed with VUL’s share price sinking over 20 per cent once it was able to trade again.

In other news, Australia’s corporate watchdog, ASIC, announced last week that it has approved a basket of cryptocurrency-related exchange-traded funds (ETFs) to list on the ASX. This now grants investors the opportunity to gain direct exposure to the volatile asset type, though ASIC has imposed strict regulations for the custody of the asset – as it can be easily stolen or lost when compared to that of an ordinary share.

Looking ahead

Monday 1st November 2021 – Friday 5th November 2021

  • Monday: AU AIG Manufacturing Index (Oct), CN Caixin
    Manufacturing PMI (Oct) GBP Manufacturing PMI (Oct)
  • Tuesday: AU RBA Interest Rate Decision, US ISM Manufacturing PMI (Oct)
  • Wednesday: AU Building Approvals (MoM), GBP Composite and Services PMI (Oct)
  • Thursday: AU Trade Balance (Sep), GBP BoE Interest Rate Decision
    US FOMC Interest Rate Decision, Trade Balance (Sep)
  • Friday: US Unemployment Rate (Oct), Nonfarm Payrolls (Oct)

Friday 29th October, 5pm values

 IndexChange%
All Ordinaries 7727 +53 +0.7%
S&P / ASX 200 7416 +54 +0.7%
Property Trust Index 1663 +48 +3.0%
Utilities Index 6231+78 +1.3%
Financials Index 6874 +136 +2.0%
Materials Index 15143 -213 -1.4%

Friday 29th October, closing values

 IndexChange%
U.S. S&P 500 4545 +74 +1.7%
London’s FTSE 7205 -29 -0.4%
Japan’s Nikkei 28805 -264 -0.9%
Hang Seng 26127 +796 +3.1%
China’s Shanghai 3583 +11 +0.3%

Key dividends

Monday 1st November 2021 – Friday 5th November 2021

  • Monday: N/A
  • Tuesday: Div Ex-Date – Brickworks Limited (BKW)
  • Wednesday: N/A
  • Thursday: Div Pay-Date – Arena REIT No 1 (ARF)
  • Friday: Div Pay-Date – MFF Capital Investments Ltd (MFF)

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 4738Brent QuinnT: 1800 064 959
Livio Caiolfa T: (03) 8825 4748Michelle BromleyT: (03) 8825 4751
Marcus AingerT: (02) 9134 6292Nicole LewisT: (03) 8825 4734
Dylan CresswellT: (03) 8825 4707Nicholas Miller T: (03) 8825 4722
Jarrod Rodda T: (03) 8825 4729Gina McIntoshT: (07) 3557 2557

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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