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Australian October Australian Industry Group service sector activity rebounded to an 11-month high, and lending support to our argument that the Australian economy is in the process of bottoming out.
The headline ‘sales’ sub-index jumped to its highest level since June 2018 indicating a renewed uptick in general service sector activity.
US job opening data continues to ease with September openings falling to an 18-month low and indicating that the US has reached peak employment with the unemployment rate near its 50-year low of 3.6%
Westpac (WBC) posted disappointing earnings for 2019 and gave soft guidance that things were unlikely to get any better in 2020 or even 2021.
National Australia (NAB) results weren’t as disappointing as their peer group in large part because the bank benefited from improved lending with its business and corporate bank alongside strong cost controls.
Pendal (PDL) shares have bounced +12% thus far this week after having reported FY19 profits that were largely in-line with analyst forecasts.
We have made much of our belief that Australia’s economy is set to bottom out before Christmas and that by early 2020 activity will be on the improve.
With that in mind we were encouraged to see the first visible green shoots of recovery emerge in the local economy last month as evidenced by the bounce in the Australian Industry Group service sector reading to an 11-month high, and the sales component jumping to its highest level since June of 2018. The combination of interest rate cuts and rebounding housing markets, the rising share-market and current and prospective income tax cuts should be making Australian households feel increasingly flush. We think the data is set to turn and we believe good exposures for Australian portfolio’s including small company exposures, housing and construction plays such as Boral (BLD) and Reliance Worldwide (RWC) and consumer travel group Webjet (WEB).
This week investors will look towards the latest Australian consumer and business confidence figures, whilst we will be paying close attention to Afterpay’s (APT) trading statement due on Wednesday.
Regards,
Jono
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