Lockdowns, lithium and largesse

Economics here and abroad…

Australia

The S&P/ASX 200 Index closed the week up 23 points to 7,526 points. Results season enters its second week, while economists worry that lockdowns the country’s two largest cities may diffuse supply chains and put the Australia back into recession. The market is toppy and in bubble territory, but company earnings are coming in better than expected, dividend payouts are high, interest rates are low and confidence is high. The Delta strain however, has the potential to cause disruptions. It also adds uncertainty to the overall recovery effort. Two capital cities are stuck in lockdown. Until the level of vaccinations rises from 17.5% to 80%, the current cycle is expected to continue. We still have a long way to go.

Overseas

The S&P500 Index has also hit record highs boosted by a bumper quarterly earnings season, in which 88% of companies have posted positive results. However share markets are playing a love-hate game with the Delta variant. Rising concerns over how the global economy will withstand it are starting to creep in. The worry now is whether the Fed will continue to support the economy, helping to spurt further expansion for equities and whether inflation will persist above the 2% goal into next year. On the positive side the US economy added 943,00 jobs in July while the nation’s unemployment rate fell to 5.4 percent..

Economics Ahead…

Monday

• China: Inflation Rate YoY JUL
• China: PPI YoY JUL

Tuesday

• Australia: HIA New Home Sales MoM JUL
• Australia: NAB Business Confidence JUL
• Australia: Building Permits MoM JUN

Wednesday

• Australia: Building Permits MoM JUN
• Australia: Westpac Consumer Conf Index
• US: Core Inflation Rate YoY JUL
• US: Inflation Rate YoY MoM JUL          

Thursday

• Australia: Consumer Inflation Expectations AUG
• US: Initial Jobless Claims 07/AUG
• US: PPI MoM YoY

Friday

• US: Export & Import Prices

ASX Reporting Season Calendar…

What we think…

So far, so good. Corporate earnings season in Australia has got off to a good start. Out of 15 companies there has only been one miss on earnings forecasts, seven “beats” and seven in line. That’s a super start to the month. However, the Delta variant is causing a lot of angst in the market with investors worried this lockdown could last a lot longer. The entire east coast of Australia is in some form of lockdown. Victoria’s recent lockdown cost about $100 million a day in lost economic activity, according to Victorian Treasury. NSW’s current lockdown will cost about $140 million a day, according to AMP. The only way out is by increasing the percentage of those vaccinated to 80%. To aid the process, drive-though Covid vaccination clinics have been setup to deliver Pfizer vaccines. In the earnings front, a few big companies are due to report this week: Suncorp, Transurban and Aurizon posting results on Monday. CBA and Telstra are due to post towards the end of the week.

Highlights for August

• The ASX200 (ASX:XJO) managed to eke-out another consecutive record finish and continues a positive start to the month, driven by seven of the 11 key sectors finishing higher.
• The property sector continues to defy expectations delivering the strongest performance with the likes of Goodman Group (ASX:GMG) and Vicinity (ASX:VCX) rising.
• The oil price continues to fall as the Delta lockdowns expand, with Woodside (ASX:WPL), Santos (ASX:STO) and Oil Search (ASX:OSH) closing lower.
• Pinnacle Investment Management (ASX:PNI) was the market leader as it makes a push for the S&P/ASX 100, on a market update. The group takes 49.9% ownership stakes in various fund managers, and provides then with back office and distribution support. It owns part of Coolabah Capital, Hyperion and Firetrail among others and reported a 52% increase in assets under management to $89.4 billion dollars over the financial year.
• Furniture retail Nick Scala (ASX:NCK) shares fell despite reporting a doubling of profit to $84.2 million on the back of a 42% increase in revenue, which hit $373 million.
• All three US market indices are on the rise as earnings season comes to an end, with Latin American Amazon, Mercado Libre (NYSE:MELI) delivering a solid earnings results.
• The US’s version of Realestate.com.au, called Zillow (NYSE:Z) smashed expectations and is now flagging its first US$2 billion revenue quarter. The group reported a near doubling of revenue to US$1.31 billion on the back of a 70% increase in home listings.
• Afterpay Ltd (ASX:APT) the stock now trading in line with its suitor, Square Payments (NYSE:SQ) which jumped overnight after a strong earnings report. The deal has seemingly made traders believe everything is on sale, with Zip Co (ASX:Z1P) and even struggling e-commerce play Red Bubble (ASX:RBL) rising, without any news.
• All eyes were on the Reserve Bank of Australia (RBA), with experts predicting the planned tapering of bond purchases would be paused given the expanding outbreak.
• Shares in debt collection agency Credit Corp (ASX:CCP) closed flat after it reported a 500% increase in profit to $88 million for the financial year. Revenue rose 19.6% with management citing their unique analytical ability as being behind their success.
• Qantas (ASX:QAN) shares were hit after the airline stood down a further 2,500 workers due the extended lockdowns and delta outbreaks.
• Shares in semiconductor chip manufacturer NVIDIA(NYSE:NVDA) closed higher despite the UK government potentially putting a hold on its acquisition of major competitor ARM holdings. Sticking with gaming, Activision actually delivered profit growth nearing 50% for the quarter, after revenue exceeded US$2.3 billion despite a decline in ‘in game’ purchases..

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.