26 JUL 21 – Monday Market Highlights – Transcript

SUMMARY KEYWORDS

week, ltm, lockdown, reporting, increase, crown, companies, bid, royal commission, milford, weekly jobless claims, merger, vaccine, monday, victorian, released, australia, jb hunt, sydney, jobless claims

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 26th of July, and I’m rolling from Milford. There was some really interesting data released in Australia last week that showed in the June quarter a record number of firms said the inability to find labor was significantly constraining their output. The same survey also highlight a decade high capex and tensions pointing to a very strong period of investment over the next 12 months. Despite this, we are seeing increasing near term uncertainty as the lock down in Sydney looks like it’s nowhere near ending. The RBA was planning on reducing the quantitative easing from 5 billion per week to 4 billion per week in September. However, last week, they did walk back from that saying that if conditions remain uncertain, they will maintain their $5 billion weekly purchase rate. In the US Weekly jobless claims increased to 420,000, which is quite a lot higher than consensus at 350,000. As a reminder, jobless claims are people who request to receive unemployment insurance. This increase is surprising given enhanced unemployment benefits are ending and companies are apparently becoming more aggressive about filling vacant positions. Now this is a weekly index so we wouldn’t get too hung up on one print. In equity news, the US reporting season is in full swing and it’s been very strong to date with most companies beating and being by quite a bit. Now. Look, there are a huge many companies that are reporting How about what you are seeing consistently as a very strong consumer. The house values up their incomes are up, savings are up and their confidence is up. JPMorgan have seen credit and debit spinning up 22% versus pre pandemic levels. Now this heightened demand is causing a lot of supply chain issues which is translating into skyrocketing freight costs. Labor is also a big cost bucket where you are starting to see more pressure. JB Hunt, a large us freight company said it’s the biggest shortage of truck drivers they’ve seen in 37 years. Turning to Australia, oil search had an interesting week. On Monday last week, they held a conference call to discuss the CEO leaving on this call, they were asked whether they had received any bids for the business. They explicitly said they had received no offers in recent times. Now the next morning sent us released a market statement saying they had in fact proposed a merger with oil search in June, but this had been rejected by the board. The bid valued oil search at $4.25 a share which was a 16% premium to its closing price last Monday. Although this also confirmed it was walking away from the acquisition of LTM. The soy LTM share price fall throughout the week. LTM came out a couple days earlier and said no higher price had been offered by Autodesk. However, Autodesk in their statement said they verbally offered a higher price. This is again an example of boards having a lot of control over what shareholders hear and see as it relates to m&a conversations. Now crown had a week to forget the council was seeing the Victorian regulators said crown was not fit to hold a Melbourne casino license. Now the Victorian Royal Commission will release the recommendations on the 15th of October. So it’ll be very interesting to see what they have to say star also pulled their bid for crown given the lack of engagement from crown and some concerns around the outcomes of the Victoria Royal Commission. Look, this merger makes a huge amount of sense to us. But we saw it as a low probability outcome given what’s occurring and the current form that star had proposed. Now looking to the week ahead, US reporting season is entering a particularly interesting time as this week we have alphabet visa, Apple, Microsoft, Starbucks, pay pal and Facebook all reporting the June quarter results. It will be very interesting to see how these businesses are managing the rapid reopening of the US economy with a focus most certainly on the outlook statements domestically. Look for a potential increase in fiscal support. We’re seeing more companies such as quantitative pressure for additional stimulus to help with this current lockdown. We do believe there’ll be some additional stimulus or support packages from the government given this lockdown looks like it will last for some time. However, we don’t expect it to be as material as it was last year. However, it will still help New South Wales is also aggressively pushing for an acceleration in the vaccination rate. They are redirecting all vaccine initiatives to Southwest Sydney and Western Sydney the two areas most impacted by this lockdown so watch closely for an acceleration and vaccination numbers given we also have a lot more fires of vaccines in Australia now. Thanks for listening. We’ll see you next week.