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Local and global equity markets weakened this week as investors wanted to see more stimulus from central banks but got platitudes instead. Central banks were clearly dovish in their statements but held fire on new rounds of stimulus. 

In local stock news, Rio Tinto shares came under pressure after the CEO and 2 senior executives resigned after an investor revolt over the destruction of the Juukan Gorge (historic Aboriginal cave site) in Western Australia. They did have permission to mine the area. An inquiry will reveal further details. The CEO will stay on until a successor is found or until March. 

Macquarie Bank shares fell early in the week after the company said its first half result was expected to drop by 35% on the previous financial year. The company cited the pandemic, government support for economies, and impacts on foreign exchange as main reasons for downgrade. 

Oil major BP’s new outlook for the energy industry includes a prediction that global oil demand will plateau as early as the mid-2020s before going into long-term decline. Most recent forecasts had the plateau commencing no earlier than 2040. 

The oil price rose this week as Hurricane Sally cut US production whilst OPEC and its allies agreed to take action on members that are not complying with agreed upon production cuts earlier in the year. 

The Aussie dollar rose above 73c against US dollar, getting some support from better than expected employment numbers and a weakening US dollar. 
Australian employment was up by 111,000 or 0.9% in August (surge in part-time) which saw the unemployment rate fall to 6.8%. Underemployment was steady at 11.2% whilst the participation rate ticked up. Hours worked didn’t increase by much hampered by Victoria’s result where people worked less hours will still be counted as employed.
 
New analysis from Deloitte shows that cutting JobSeeker would put 145,000 full time jobs at risk and cost the economy more than $31 billon. The $550 coronavirus supplement will be reduced in September before completely eliminated in December. 

According to the Commonwealth Bank of Australia, their latest internal data shows that growth in household income has eased in recent weeks, but that overall household income has stepped up further in the 3rd quarter following a spike in quarter before that. The number of people receiving JobSeeker peaked in mid-to-late August. The average total savings balance per household continues to rise primarily because the growth in income is outstripping the growth in spending. 

The US central bank kept rates near zero and promised to keep them there until inflation is on track to moderately exceed the bank’s 2% target for some time. That effectively implies no rate rises until the end of 2023 at the earliest, with a slower economic recovery pushing any rate rises out to 2024/25 at the earliest. Fed Chair Powell gave a very dovish outlook on the economy. Worrisome, but it means more stimulus is coming. 

The European Central Bank left rates and its asset purchase program unchanged. The president of the bank mentioned they were keeping an eye on the strength of the Euro currency but didn’t see any immediate need to intervene. A strong Euro hurts the very export dependent European economy.  

Britain’s labour market worsened in July, taking total job losses since the start of the virus to almost 700,000. The Bank of England said it was looking more closely at how it might cut interest rates below zero

A key survey showed that investor sentiment in Germany rose unexpectedly in September, signalling confidence in a recovery from the virus. Retail sales, industrial production, and exports all showing good signs of a recovery. 

Chinese data showed that industrial output rose 5.6% in August from a year ago, the 5th consecutive month of gains. China’s retail sales rose 0.5% last month from a year earlier. It was the first increase this year on a corresponding period from last year and came in higher than analyst forecasts. 
The UK and European trade negotiations went nuclear with the UK government planning to rewrite the withdrawal accord already in place. The EU demanded that this be scrapped. The UK government refused with the EU giving PM Boris Johnson until the end of the month to back down. If no trade deal by December 31, tariffs will be triggered and commerce at the borders with grind to a halt as red tape takes over.
 
PM Scott Morrison’s government has unveiled plans to invest in building domestic fuel storage facilities while backing local refineries to stay open. The plan aims to secure Australia’s long-term fuel supply, while keeping prices low, and creating 1,000 new jobs. The Victorian government announced a much needed $3 billion package for small and medium enterprises. A good start but a lot more to be done. 

On the vaccine front, Pfizer CEO said that the vaccine they’re producing with BioNTech could be available for distribution in the USA by the end of the year, with phase 3 trial results likely to be made available to US drug regulators by the end of October. AstraZeneca, who is producing a vaccine in collaboration with Oxford University in the UK, has received approval to resume the phase 3 trial after a serious side effect developed in one participant last week. 

Yoshihide Suga has been elected leader of the ruling Liberal Democratic Party and installed as Japan’s next prime minister following Abe’s resignation due to health issues. Suga was Abe’s closest colleague and is expected to continue with much of Abe’s stimulus plans. However, Suga also has a reformist streak which might result in some much needed pro-growth reforms. 

The United Arab Emirates and Bahrain signed accords establishing diplomatic relations with Israel, becoming just the 3rd and 4th middle east nations to formally recognise Israel. US President Trump brokered the deal. The deal doesn’t contain much substance but it’s a good first step in the middle east.  

This weekly blog has been written and published by Insight Investment Services.
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