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Firetrail Weekly | Three things that got the team talking this week

Firetrail Weekly | Three things that got the team talking this week

 

April 16 2021

 

1. How good is AUS…

NAB business conditions are at 25-year record highs, and confidence sitting not far off historical peaks either!

Source: Bloomberg

 

2. Strong jobs…

Reports out this week that portfolio company Seek March job ads were the highest in their history, and up 10% m/m. They are also seeing applications per ad at the lowest levels since 2012, which supports our thesis on dynamic pricing led yield tailwinds into the remainder of the year.

Meanwhile, the Aus March labour force report was strong with employment rising 70k m/m, double the consensus. The unemployment rate also declined -0.2ppts to 5.6%

We are watching to see if record job ads + decade low applicants/job + record-high employment will equal accelerating wages growth…

Source: ABS

 

3. Spot the ESG difference…

We had the biggest launch in the history of ETFs this week, with Blackrock launching the US Carbon Transition Readiness ETF (ticker: LCTU), which lured about $1.25 billion on its first day. It has been interesting to compare the differences in some of the ESG ETFs available. Particularly after the product group attracted a record $31 billion in 2020 (4x 2019).

The 3 lists of top fund holdings below include the S&P500 index ETF, which charges 3bps, another for 15 bps you get to “drive innovation by embedding sustainability risk into our active investment process”, and the third for 30 bps you get “a sea change in global investing”, but which one is which?

The launch also comes after the SEC released a report last week cautioning that some firms are mischaracterising their products as ESG, which may violate securities laws. No companies have been named as yet.

Source: Bloomberg, Bell Potter

 

Firetrail Weekly | Three things that got the team talking this week

Firetrail Weekly | Three things that got the team talking this week

 

April 9 2021

 

1. Food fight…

We’ve heard news of renewed discounting by a major Australian supermarket this week (prices are down at Coles!), so we had a look at what’s been happening in food prices in Aus, and versus the rest of the world. In Aus, at-home food (ex-fruit & veg) prices hardly rose between 2009 and 2018 and then the drought, A$ depreciation and COVID put upward pressure on prices until they flattened out in the second half of 2020. AUD appreciation should now be putting some downward pressure on tradable food prices (which account for the bulk of food prices). Eating out prices continued to rise, which didn’t come as a surprise to us!

Meanwhile, the UN gauge of global food prices climbed for a 10th month in March, driven higher by costlier vegetable oils, meat and dairy. China’s buying spree and shrinking supplies of many staple products are fueling the gains, threatening faster inflation.  

Source: Macquarie 

Source: Bloomberg 

2. Here’s to growth…

The IMF upgraded its global economic-growth forecast, for the second time in three months, this week. The world’s output will expand 6% this year, up from the 5.5% pace estimated in January, the IMF said in its World Economic Outlook published on Tuesday. That would be the most in four decades of data and follows a 3.3% contraction last year that was the worst peacetime decline since the Great Depression. Looking further ahead, global GDP for 2022 is seen increasing by 4.4%, higher than an earlier estimate of 4.2%, with the IMF Chief Economist commenting “Even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis is increasingly visible”. However, the growth came with a warning about widening inequality and divergence between advanced and lesser-developed economies.

3. Hello travel bubbles…

New Zealand announced their travel bubble with Australia this week! – Allowing Australian travellers to enter the country without mandatory hotel quarantine from April 19.

  • In 2019, 1.5m Aussies flew to NZ spending ~$2.5bn & 1.3m Kiwis flew to Australia spending ~$2.4bn.
  • Portfolio holding, Qantas, said Trans-Tasman seats are selling “like hot cakes” and noted frequent flyer points redemptions were ~80x that of a normal day! Whilst Virgin Australia has suspended the sale of most of its NZ flights until the end of October, saying the “evolving border requirements” of the bubble adds too much “complexity” to its business.
  • Air NZ has initial plans for 50% of pre-covid capacity on the ditch crossing, whilst Qantas & Jetstar are planning 83% of pre-covid capacity.

And see below ANZ data for March spending, showing big increases in travel and entertainment spend.

 

Firetrail Weekly | Three things that got the team talking this week

Firetrail Weekly | Three things that got the team talking this week

 

April 1 2021

 

1. Loans defrosted…

APRA published their February data on temporary loan repayment deferrals this week. The value of loans frozen by pandemic-affected borrowers fell to just $14 billion at the end of February, from a peak of $274 billion. Just 0.5% of the value of all loans is now on deferred payments, and 0.7% of the value of housing loans. APRA also announced this will be the last time they release a monthly report on temporary loan repayment deferrals due to Covid, as the programs are coming to an end!

 

 

2. Jobs outperforming…

Payroll jobs in Australia for the week ending 13 March were 0.2% higher than a year earlier. And Australia remains a clear outperformer on the jobs front versus our global peers.

 

 

3. The grains are here… 

The International Grain Council is forecasting a record global grain production of 2.287billion metric tons in 2021/22 season. Notably they are also forecasting record consumption to absorb the massive supply, with expectations for a record harvest in wheat, corn, and barley too. Good news for portfolio company Nufarm. Interestingly, Australia has also overtaken NZ in sheep exports. Apologies to Jimmy, our resident Kiwi!

Firetrail Weekly | Three things that got the team talking this week

Firetrail Weekly | Three things that got the team talking this week

 

March 26 2021

 

1. Household wealth… 

According to REA numbers YTD (1st 12 weeks) Aussie home sales are up 35% vs 2020, & up 60% vs 2019, with last week’s sales the highest this year. Sydney dwelling prices remain on track for the fastest monthly increase since the late 1980s, with an expected ~4% m/m rise in March. According to Domain there was $694m of property sold at Sydney auctions on Saturday, again a 2021 high. In Melbourne there was $556m of sales, up from $488m the prior week.

According to ABS data Aussie Household wealth in the December quarter rose 4.3% to a record $12trn, with housing making up $7.8trn of assets.

Source: Macquarie

Source: Domain

Source: ABS

2. Getting paid to borrow…

A crazy headline in the Wall Street Journal caught our attention this week, shown below, showing how different the housing market appears overseas. Caixa Geral de Depositos SA (Portuguese state owned bank) said it is paying interest to ~12% of its mortgage borrowers. Whilst in Denmark, the biggest mortgage lender, Nykredit, said >50% of loans up to 10 years had negative interest rates, though they charge an admin fee which offsets some, if not all, of the negative rate.

The chart below (data from BIS) shows central bank rates for the last 10 years to give you some global perspective. Turkey, Russia, & Brazil raised last week, with Turkey’s central bank head sacked because of it. Who will be next?

 

3. The Fed have left the taps on… 

Interesting collection of charts we’ve seen this week showing various follow-on impacts of the massive Fed stimulus program on the global economy. And the Fed is reportedly planning to continue adding at least $120bn/mth to its balance sheet.

  • Philly Fed factory index at nearly 50-year highs
  • Largest weekly equity inflow on record

 

 

Firetrail Weekly | Three things that got the team talking this week

Firetrail Weekly | Three things that got the team talking this week

 

March 19 2021

 

1. Immigration is back… 

The monthly proxy for Australia’s net immigration has turned slightly positive in recent months! Interesting to see the split of migration by age groups. Detailed data shows that most of the net immigration to Australia in recent years was by 15-34-year-olds (aka international students and skilled migration). 

 

2. Jobs boom…

Australia‘s employment report came out much stronger than expected this week with the unemployment rate falling to 5.8% from the prior 6.4%. The market forecast was 6.3%. In February Australia generated 88,700 new jobs, all of which were full-time (the market was expecting around +30,000). Reports are suggesting this was the second highest month on record! Hours worked bounced back strongly from the unusual holiday-induced fall in January and would have been even stronger if not for the survey period capturing the snap lockdowns in Perth and Victoria. Australia is still a standout in the jobs recovery versus other developed economies.

3. Value versus growth update… 

After about a decade of growth stocks outperforming, the value style of investing is seemingly having its turn. More than $18 billion this year, already a quarterly record, has gone into about 80 different ETFs that focus on companies considered undervalued relative to their assets, like banks.

Firetrail Weekly | Three things that got the team talking this week

Firetrail Weekly | Three things that got the team talking this week

 

March 12 2021

 

1. What are we saving for… 

As another $1,400 gets handed to out to >85% of US households, interesting to see how much savings have built up in the US, and across other developed economies. We are all waiting to see how the potential spending boom plays out with inflation expectations.

US data in first 2 charts below, and Aus the third.

2. Business looking good…

Australian firms reported strong business conditions in Feb, and NAB survey also showing the cheer, as a higher share of Aussie firms reported rising forward orders for Feb – which is typically a positive signal for domestic demand growth. Aussie consumers are also back to 2010 confidence levels, and households’ perception of their finances over the year ahead remains solid.

 

3. Booming demand means trying to find supply… 

The current boom conditions are widespread, and we’ve been keeping watch on the impact this is having on global supply chains. A couple of interesting anecdotes rounded up below:

  • U.S. manufacturing expanded at the fastest pace in three years in Feb, as a gauge of materials costs accelerated the most since 2008 amid supply shortages
  • Vaccine manufacturers are said to be facing a global shortage of the raw materials needed to churn out the shots. The warning came from the head of Serum, the world’s largest vaccine maker, and from the WHO’s chief scientist.
  • There’s a seat foam shortage in the US! One anonymous auto executive told Automotive News that this is going to be a bigger problem than the microchip shortage the industry is already dealing with…
  • There’s also a global sand shortage! Apparently sand is the world’s most consumed raw material after water!
  • Our friends across the ditch, NZ, are facing a shortage of anything related to residential building materials – including timber, plywood, concrete (with pricing up +25% over past 4 months) and copper.
  • And good luck planning a reno, here and in NZ. Homeowners may have to wait up to a year to get projects started with stories of property conveyancing lawyers turning away new client referrals, and ‘subbie’s’ (builders, plumbers, electricians) backed up for ~18 months…
  • “Supply constraints” was even put into a chart after the recent US earnings season (chart below)