• Local and global stock markets fell this week as the Chinese government did its best to spook investors whilst the backdrop of rising virus fears and restrictions didn’t help investor sentiment.
• In local stock news, Sydney Airport rejected an improved $22.8 billion bid from a group of infrastructure investors, with the board saying it undervalued the airport operator but that it was open to a higher offer. The board knows these investors have deep pockets, long-term liabilities they need to match, and little to no regard for valuation. The successful price likely needs to be close to $9, or at least north of $8.75.

Markets

• Property developer and funds manager Lendlease gave a downbeat update and earnings outlook which reflected concerns regarding the virus and government policy responses. The company said lockdowns would hamper construction this financial year and lead to a low point for profitability.
• Iron ore miners saw their share prices fall sharply this week as the iron ore price continued to fall. BHP also announced 3 large changes to their business including an agreement to merge their petroleum assets into Woodside Petroleum which will see BHP shareholders own 48% of the new Woodside, approval of a near $8 billion investment in their Jansen potash project in Canada, and a simplification of their corporate structure which will see their dual listing come to an end with a single listing in Australia. The company announced a bumper full-year net profit, up 42%, with a big
  $2.80 per share final dividend.
• The retail sector showed the benefits of ripe conditions over the last 12 months (ie. lockdowns and plenty of government stimulus) with Breville Group, JB Hi-Fi and Super Retail Group all announcing strong results.
• Magellan Financial Group shares fell sharply this week with the company announcing a significant drop in the performance fees they earn on their funds following a tough year of relative performance in those products. Comments from management on the investor call didn’t seem to help. The company also announced that its tax rate will increase from FY24.
• CSL announced a rise in profits but disappointed some by forecasting a lower profit this financial year as the cost of collecting plasma remains elevated and shortages of supply remain in the USA due to virus restrictions on movement and continued generous unemployment benefits which are scheduled to end next month.
  Supermarket giant Coles gave an uncertain outlook as sales return to normal levels amid lengthy lockdowns in major cities. The company said trading had been mixed in the current quarter with sales up 1% in the first 7 weeks of the financial year. Full-year profit rose 7.5% to $1.01 billion.
• The iron ore price continued to fall this week as China’s plans to limit steel production for environmental reasons became more apparent. Seasonality also not helping demand for ore.
• The oil price fell this week as concerns arose regarding weaker demand in the 2nd half of this year due to rising virus fears. The International Energy Agency also said they expect a surplus of supply in 2022. This is in contrast to the USA where oil inventories are running very low.

Economics

The Reserve Bank of Australia’s meeting minutes shows the board remains rather optimistic in the short term and that their bond purchase program (money printing) will continue to be reviewed as data changes, still with an expected reduction starting from September. The Bank’s base case assumes the Sydney lockdown is over by the end of September……At present, over half of the population is subject to lockdown with NSW and Victoria representing almost 60% of Australia’s economic output.

• Australian labour force data showed that employment rose by 2,200 in July and that the unemployment rate fell to 4.6% as a result of a falling participation rate (less people in work and actively looking for work). Hours worked also fell. Labour market outcomes will only deteriorate from here in light of the current government health policy path.
• The Australian wage price index rose by just 0.4% in the 2nd quarter, with private sector wages rising slightly faster than the public sector. Wages growth was strongest in Tasmania and weakest in SA and WA, with wages in the construction sector rising prior to the Sydney lockdown. The monthly wage increase came in below expectations, but the annual rate rose to 1.7% from 1.5% last quarter.
• The US central bank’s July meeting minutes showed that most members saw reason to start reducing the bank’s emergency asset purchases (money printing) later this year, but members still disagreed on the speed, schedule, and composition of any reduction.
• A key US consumer sentiment report dented optimism after a preliminary reading showed that the index fell to its lowest level in a decade even with US households in pretty good shape. Virus policy fatigue taking its toll.
• A report showed that US retail sales fell more than expected in July, impacted by supply shortages, boost from stimulus payments fading, and uncertainties regarding virus health policies.
• The pace of reopening is gathering pace in the UK with the economy growing more than expected in June as restrictions were lifted. The hospitality and health service sectors are the main drivers of the growth. Trade data was also strong with exports of goods to the EU above pre-Brexit levels for the second month in a row.
• China’s economy slowed more than expected in July, with retail sales, industrial production, and investment in fixed assets all growing less than forecast. Unemployment also ticked higher as new virus measures kicked in.

Politics

• The disastrous US exit from Afghanistan will be etched in memories for a long time to come with the Taliban almost instantly back in charge after 20 years of US occupation and with 1000s of ally citizens and diplomatic staff still stuck in the country. Yes, the US had to exit and should’ve existed long ago, but the execution of that exit is one of the worst seen in history. US foreign policy of the current administration is under significant pressure.
• China’s president put their wealthy elite on notice, outlining a “common prosperity” plan that includes regulating and redistributing income. This follows massive efforts to reduce poverty, with a recent crackdown on the technology industry and criticism against the excesses of celebrity culture. Interesting times.
• As NSW and VIC plunged further into lockdown, a large-scale UK study along with data out of Israel clearly shows that the vaccines are less effective against the delta variant, and the protection from vaccines wanes after 90 days. The study and data showed that whilst the vaccines were effective at reducing severe illness and death, those vaccinated were shown to carry the same viral load as those who had not been, casting doubts of achieving herd immunity using vaccines.