19 JUL 21 – Monday Market Highlights – Transcript

SUMMARY KEYWORDS

employment, increasing, inflation, bid, price, opec, lockdown, australia, materially, full time employment, continued, highlight, equity, turning, barrels, paypal, consortium, week, higher, concern

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 19th of July, and I’m rolling from Milford. A lot of data out this week. But the key news was definitely the US CPI release which materially beat expectations, increasing point 9% month on month, taking annual inflation to 5.7%. Both of these are very big numbers. Now, it was driven by some temporary factors such as used car prices, which increased 10.5% month over month, however, there is still pressure building in most areas of the economy. One area of concern is food inflation, which increased 0.8% month a month and is therefore annualizing 10%. Although some economists are happy to back these numbers out, it is a big part of a real world individual or family’s budget. Despite these rising pressures, the US fed still see inflation is transitory and believe the US is a long way from achieving substantial progress in their employment conditions. We disagree with the feds dovish stance and still think tapering will occur early than the current timeline suggests. Turning to Australia, employment data was released and it continued its strong run with the unemployment rate falling to 4.9% and total employment breaking new highs and addition there was a shift towards full time employment this part time which is great to see. hours worked was a touch weaker. However, this was due to an 8% decline and hours worked in Victoria due to lockdown. This metric will remain subdued given the lockdowns however, we still see strong employment fundamentals beyond the setup. In equity news, the Sydney Airport rejected the deal and didn’t open the books as they believe the deal undervalues the business. Particularly when you look at the share price pre pandemic, the consortium pushback highlighting the previous price isn’t a good indicator of value. Because traffic volumes would take years to recover. There are more shares on issue given the equity raise. Plus they highlight the increasing competition in 2026 from Western Sydney Airport. Now there’s points on both sides, but you never expect a bidder to put their best foot forward first, so we would expect a higher bid in the coming weeks. The infrastructure m&a boom continues as spark infrastructure received two bids in quick succession from the same Consortium. The initial bid of $2.70 was quickly up to $2.80 however, it was turned down by the board. It’s an interesting one as spark has no controlling interest in any of the key assets and dividends haven’t really grown in years. However, here we are PayPal announcing the entry into Australia and Apple announcing their own buy now pay later product rocks the afterpay share price, PayPal entering Australia isn’t a big deal in our view given off to a strong market position. Apple on the other hand, is something to consider as they are a formidable competitor in all markets they operate in. We do think the scale after they has and their ability to generate leads for retailers is very valuable and think the smaller players are likely to struggle more than afterpay. But hey, a new competitor is needed. Great. Now turning to this week, US reporting season is in full swing, which would be a focus for many. Given the fast recovery bottlenecks and labor shortages. Actual company results will provide more granularity on what’s actually happening in the US. Also the OPEC plus talks appear to be making progress. As a quick refresher, OPEC plus are planning on increasing the oil production by 400,000 barrels of oil a month. However, the UAE wants a higher amount of these barrels than they currently allocated. Now, there’s no official agreement yet, but apparently there’s talk of a compromise. So look for any information on this. Finally, we’re watching the Delta variant very closely. Now look, we have a playbook for resolving this. We know how to get cases down to zero, but the longer it’s in the world, the higher the probability of a nasty mutation, which is a bit of a concern. What is clear, however, is that vaccinations help materially so it’s pleasing to see continued progress on this front. Thanks for listening. We’ll see you next week.