• Equity markets were mixed this week as central bank rhetoric and virus concerns dominated developed markets whilst the Chinese government did its best to unsettle Asian and emerging markets. 
• US 2nd quarter company reporting season is firing on all cylinders with a very high proportion of companies beating consensus estimates, on both the top line (revenues) and on the bottom line (costs). Analysts now expect aggregate earnings growth of 78% for the quarter at the same time last year, which is an increase from the 54% growth expected at the beginning of the quarter.

 

 

MARKETS

• In local stock news, Star Entertainment withdrew its merger proposal for Crown Resorts. The decision comes after a royal commission raised the prospect Crown could lose the license for its Melbourne casino. Star said there was too much uncertainty to continue, whilst the Perth casino royal commission was given more time to complete investigations. 
• Rio Tinto reported 1st half profit had more than doubled in the same period last year as Chinese demand for ore helped underlying earnings rise to $16.6 billion. The world’s largest iron ore miner declared a massive interim dividend of $7.62 a share.
• Spark Infrastructure shares rose after a US consortium improved its offer to take over the company at $2.88 per security. The Spark board said it was in security holders’ interest for the company to continue discussions with the consortium.
• Priceline pharmacy owner Australian Pharmaceutical Industries rejected the takeover from Wesfarmers stating that the offer undervalued the company, whilst share market and financial planning software vendor Iress saw an improved takeover from EQT Fund Management which the company rejected but shared more financial data in the hope of extracting a higher offer. 

ECONOMICS

• Australian inflation rose 0.8% in the June quarter, pushing inflation for the 12 months to 3.8%, finally coming in above the RBA’s 2-3% target band. The spike was largely due to base effects (ie. very low inflation reads dropping off) and a spike in automotive fuel (6.5%). The RBA’s preferred inflation measure rose by 0.5% in the quarter to see the annual rate hold at 1.6%. The RBA will likely look through the numbers. 
• The Australian federal government re-introduced some stimulus programs to support state effort as the continuing NSW lockdowns take their toll on the broader economy, with most economists now predicting that the lockdown will result in the national economy contracting in this quarter. The current NSW lockdowns are costing the economy $257 million per day, according to EY, who also found that 100 days of restrictions at current levels would wipe out almost all the economic gains made in the first 6 months of the year. Nationwide lockdowns were costing the economy $2.8 billion per week. 
• The latest CoreLogic data shows Australia’s property market continues to power ahead, mirroring the last price peak seen 4 years ago, which resulted in the banking regulator restricting the flow of credit. There’s no mention of near-term intervention, but rumours are swirling that the regulator stands ready to intervene if required. 
• The US central bank kept its policy rate unchanged at 0-0.25% and didn’t make any announcements about when it planned to begin to reduce purchases on its US$120 billion month bond buying program. The statement they issued seemed more upbeat, but they maintained that the rise in inflation would be temporary and that the labour market still had substantial progress to go, meaning they were a long way from raising rates. 
• US economic growth for the last quarter came in at a 6.5% annualised rate, well below the 8.5% expected, but a step up on the revised 6.3% rate in the 1st quarter. 
• The head of the European central bank said the bank has learned from errors of past crises and won’t derail the recovery by withdrawing emergency support early. The dovish comments drew the ire of the Germans and the Belgians. 
• The labour market in England has sprung back to life adding to evidence of tightening in the national labour market that’s starting to push up wages, fanning concerns about inflation. 
• China’s economy continued to grow at a stable pace in July, though there were some signs of weakness as property sales slumped and small business confidence slipped, as the government continued their efforts to “reset” corporate behaviour and power.

POLITICS

• On the virus front, the lockdown in Sydney will continue for at least another month with leaders pivoting from linking restrictions to case numbers to linking them to vaccination levels. Linking restrictions to ICU capacity and excess mortality has been preferred by most other countries but remains elusive here. Other states eased their restrictions. Globally, case numbers continue to drop in the UK (to 30,000 per day), vaccine passport legislation caused more concern across Europe, whilst the US reimposed federal indoor mask mandates and considered other restrictions as a result of rising cases, with 50% of the population vaccinated. 
• The US’s Centre for Disease Control said that people infected with the delta strain – vaccinated or unvaccinated – have higher viral loads compared to other versions of the virus, meaning even vaccinated people could pass the virus along to others. Vaccines generally don’t prevent transmission (why managing a virus to cases is rather moot), but successful ones should prevent serious illness and death via lower viral loads which these vaccines appear to be doing thus far. 
• The Chinese government continues its rampage through its corporate sector pivoting its attention from tech giants to the education sector, barring for-profit tutoring in core high school subjects and restricting foreign investment in the sector. China hit back at US policies in a jittery start to high-level talks in China, issued a list of demands, and declaring the relationship between the world’s two largest economies in a “stalemate”. 
• The US Senate voted to start work on the US$550 billion infrastructure bill, whilst the Democrats put their weight behind a broader budget resolution (US$3.5 trillion) which will face stiff opposition in the Senate by Republicans, thus requiring the full support of all Democrat Senators which currently looks unlikely.