8 NOV 21 – Monday Market Highlights – Transcript

Roland Houghton
Good morning. It’s Monday the eighth of November, and I’m rolling from Milford. RBA governor Philip Lowe hosted their monthly meeting on Tuesday and reiterated they had no desire to raise rates next year despite inflation exceeding their expectations. They did however, open the door to a rate rise before 2024, which was the previous central scenario. They also expect growth to surge by 5.5% Next year versus their previous estimate of 4.25%. Unsurprisingly, they officially walked away from trying to control the APR. 2024. bond yield, however, will maintain 4 billion a month of asset purchases. US non farm payrolls released on Friday evening, with the US adding 531,000 jobs in the month of October. This was a very strong print exceeding expectations of 450,000. Leisure and Hospitality added the most jobs as the services market continues to recover from COVID lock downs. The unemployment rate came in at 4.6% in October, tightening 20 basis points month on month and coming in 10 basis points lower than expected. Finally, wages continue to rise with wage inflation of 0.4% in October. This takes annual wage inflation to 4.9% a pretty significant number. The US Federal Reserve, as expected announced they will start tapering later this month at a pace of 15 billion per month. This means they will buy 10 billion less treasuries and 5 billion less mortgage backed securities each month. To put this in context. They have been buying 120 billion of these assets every month to help stimulate the economy. So they still going to be buying these assets just at a lesser amount. They decided to maintain the benchmark policy rate between zero and 0.25%. However, nine of 18 officials saw rate hikes in 2022. But the statements reiterated that rates will be held near zero until the economy achieves maximum employment. This saw the US yield curve fall as bond prices rallied at most major maturities. Finally, the Bank of England decided to keep rates on hold at 0.1% with the messaging from the meeting being much more dovish than the market expected. This saw the pound fall over 1% versus the US Dollar on Thursday, with the banking sector also falling approximately 5% On the day. Remember, high rates generally benefit banks. Turning to equity news square shareholders approved the after pay transaction and this is now expected to complete in January next year. Before then we do require afterpay shareholder approval but the vote taking place in early December. Sticking with Square. They released their q3 results on Thursday evening, with revenue missing quite significantly, but gross profit only missing marginally. The revenue Miss was driven by much lower bitcoin trading revenue than anticipated however, given this extremely low margin, it didn’t materially influence the gross profit results. Beyond this, the seller ecosystem was roughly in line with market expectations with revenue and gross profit going 44% and 48% year on year respectively, and their cash app segment excluding Bitcoin revenue missed by 8% in gross profit missed by 5%. These metrics still grew an impressive 33% each year on year. Square shares fell 4% on Friday and 7% for the week. peloton, the US listed company that sells stationary exercise bikes had a very weak result, and the outlook comments were very soft, which saw its shares for 35% on Friday. The issue is demand for the at home fitness products is falling quite quickly as economies open up and people go back to the gym. Due to this, the company’s slashed their full year revenue forecast to 4.4 to 4.8 billion from 5.4 billion a pretty monstrous downgrade. Domestically, Tara had a tough week on the back of a week trading update at their AGM. Despite total transaction value for the financial year to October growing 25% Gross Profit only grew 14% highlighting some significant gross margin compression. This was in part due to COVID impacts that was primarily driven by their revenue share arrangement with Bendigo Tyro fell 15% On the day and 19% for the week. consolidation in the Australian platform market continued this week with net wealth bidding for rival premium net wealth offered one wealth shift every 11.96 Premium shares. In addition, that returned to premium shareholders any proceeds from the sale of premiums international business that exceeded 50 million. A slightly complicated structure. The premium board has rejected the offer is there believe it undervalues the Business Premium was at 14 and a half percent on the day and 32% for the week. shares closed on Friday at $1.58 per share versus the deal price of $1.44 based on net worths closing price. This significant premium suggests the market expects a better offer to be made.

Looking to the week ahead, US inflation data will be released with the market expecting an acceleration in annual headline inflation to 5.8% from 5.4%. In addition, core inflation is also expected to accelerate to 4.3% from 4% domestically, the employment report will be released, which will show us how the Australian job market is recovering post the reopening of Victoria and New South Wales. The market expects 50,000 jobs to be added and the unemployment rate to actually increase to 4.7%. From 4.6% Given the participation rate is expected to rise faster than jobs being added. Thanks for listening. We’ll see you next week.