27 SEP 21 – Monday Market Highlights – Transcript

SUMMARY KEYWORDS

expected, week, highlighted, bondholders, rate hikes, forecast, tapering, commentary, remains, iron ore, prices, announced, rate, surge, apn, contrary, released, pleasingly, raise, central banks

SPEAKERS

Fraser Jack, Roland Houghton

Fraser Jack 

You’re listening to the Monday market highlights brought to you by Milford.

Roland Houghton 

Good morning. It’s Monday the 27th of September, and I’m rolling from Milford. The RBA minutes were released and the commentary as expected was largely in line with low speech earlier in the month. Their key view remains that the Delta outbreak has delayed but not derailed the recovery and they still don’t see rate rises before 2024, which remains very contrary to the messaging of other countries central banks, Jerome Powell delivered a speech after the monthly Federal Open Market Committee meeting, which was largely in line with market expectations. They highlighted their intention to start tapering this year, with many expecting the announcement to be made at the next meeting in November. Powell continues to reinforce that tapering and rate hikes are two separate issues and hence rate hikes won’t at this stage coincide with the lower quantum of asset purchases. The closely followed dotplot indicated 0.5 rate hikes in 2020 to three in 2023, and three in 2024. pals own forecast, however, assumes zero rate rises next year. Us bond yields rally on the back of the commentary closing at 1.45% on Friday evening, compared to 1.34% a week earlier. Contrary to the US and Australian central banks. The Bank of England commentary released on Thursday evening was more hawkish, they highlighted that the economy is recovering faster than they expected. And they have substantially reduced the unemployment rate forecast with this expecting to peak at 5.1% compared to their prior forecast of 6%. They also expect inflation to surge to 4% in q4 this year, quite a lot higher than the 2.5% they had previously assumed. This is in part due to surge in gas prices in the UK, which is actually quite an interesting dynamic gas spot prices per therm have increased from 38 pence and September 2019 to around 163 pence today. 327% increase, prices for consumers are only up 10%. And this leg is causing insolvencies amongst smaller energy retailers. Turning to equity news, the evergrande Saga continues to play out in China, and it is by no means over. One of its key deadlines was on Thursday this week, where they had us at $4 million of interest you pleasingly, the firm announced they had managed to reach an agreement that would allow it to make a coupon payment to its domestic bondholders. However, this is only one of many payments that company must make over the coming weeks, and it is largely expected that foreign bondholders will not be paid back. In addition, the Wall Street Journal reported that Chinese authorities are asking local governments to prepare for the possible downfall of evergrande. highlighting that the Chinese government is keen to make an example of evergrande. They will of course have to ensure this is somewhat orderly, so it doesn’t cause widespread financial distress. iron ore recovered in the second half of last week on the back of the evergrande payment news. However, most iron ore company rallies was short lived with many largely fleche week on week. Capital activity remains very buoyant in Australia with sandfire resources raising 1.2 billion to buy a Spanish copper mine for 2.6 billion. Now it’s important to note that the market cap of sandfire prior to the race was 1.1 billion and it’s not every day you see company raise more than its market cap. The externally managed rates all had very busy weeks with APN Industria charter whole long whale and cinterion Industrial rate acquiring over 1 billion of assets collectively, Corp and APN collectively raised $675 million to fund the requisitions whereas CL w script and cash to acquire a 50% stake in elite Property Group at a 25% premium to its closing price prior to the deal being announced. hostplus Super will own the other 50%. Turning to the week ahead. The key data to be released as US GDP growth which will be announced around 1:30am on Friday morning. The market expects 6.1% annual growth. Thanks for listening. We’ll see you next week.