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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

 

July 30 2021

 
 
1. Chinese education…

China unveiled a sweeping overhaul of its >$100 billion education sector last Saturday, banning companies that teach the school curriculum from making profits, raising capital or going public. As a result, Education stocks plunged between 60-70% in one day! Online education platforms had attracted over 100bn yuan (AUD $20bn) of capital in 2020 alone, according to iResearch.

The regulatory assault has been attributed to the government’s perception that private tuition is contributing to social inequality and rising costs of education, impacting child birth decisions. As a reminder, in May China said it would allow couples to have up to 3 children, from 2 previously.

It sends a warning signal for other public service providers that may reduce social equality, or firms breaking out from the ‘sustainable competition’ requirements…

Source: Bloomberg

2. You can travel and trade!…

It may be hard to comprehend from an Australian perspective right now, but in the US, travel spend is back to normal according to Bank of America card spend data. Meanwhile, despite the reopened economy, retail investors put >$2bn into the market on Tuesday, according to Vanda Research, and equity ETFs have seen more net inflows in 2021 than any previous full year.

Source: BofA Global Research

Source: Vanda Research

3. The Covid ‘cleanse’…

Data from the OECD/Accenture and Xero has shown the ‘cleansing effect’ Covid has had on small businesses. That is, employment in the least productive firms has suffered the most. This cleanse comes as the M&A market remains hot. Australia has had a record quarter of announced deals, and we aren’t even 1 month into it yet!

Source: OECD, Xero, Macquarie Macro Strategy

Announced M&A deals (Australia), by quarter

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

 

July 23 2021

 
 
1. Where oh where is labour…

A record high share of Australian firms in Q2 reported that finding workers was a significant constraint on their ability to increase output. Putting more pressure on wages, which is being ratified in our recent company and industry calls. Also evidenced in the US hospitality industry as their economy reopens.

US average hourly wage (hotel and food service employees)

2. Inflation watch…

Check your toiletries, cleaning products and salad dressing prices! Unilever saw their June half underlying operating margin fall 100bp to 18.8% due to accelerating cost inflation. And has warned prices of its products will go up to accommodate raw material costs not seen for a decade. Crude, palm and soya bean oil, as well as transport and packaging costs, were called out as impacting profitability. See a reminder of the skyrocketing shipping rates below.

Source: FT

Source: Bell Potter

3. Spending power…

It is impressive to see the breakout in real household disposable income per capita, after a decade of stagnation. Seems our spending power is unprecedented, as we await the increased Unilever prices to come through!

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

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

 

July 16 2021

 
 
1. Commodity price rebound…

To put it in perspective, it’s been the biggest commodity price rebound from an economic downturn in more than a century, beating the 1933 rebound from the Great Depression.

Source: EAP, Bloomberg

2. Building still booming…

Record number of houses being built and record renovations.

3. Jobs vs wage growth…

Australia’s unemployment rate declined 0.2% to 4.9% in June versus consensus expectations for 5.1%. That is the equal lowest level since before the GFC, and continues to print much lower than RBA forecasts. Employment rose 29.1k m/m despite a fall in Victoria as it endured a 2-week lockdown from late May.

The share of Aussie workers expecting higher pay over the next year also rose and is consistent with a modest rise in annual wages growth towards 2%.

Source: ABS, Macquarie Macro Strategy

Source: ABS, Melbourne Institute, Macquarie Macro Strategy

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

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

 

July 9 2021

 
 
1. Peak card spending?…

ANZ card spending shows the month on month change for June 21 was much weaker than 2018 and 2019. The MoM decline suggests that a return to more normal spend, at least, may be upon us.

Source: ANZ Research

2. Jobs vs lockdown…

Interesting to note the Current (Sydney) and recent (Melbourne/Perth/Brisbane) lockdowns in Australia have had relatively small effects on job advertising compared with what we saw last year. Job advertising in Melbourne is recovering after dipping amid its 2-week lockdown from 28 May.

Source: Seek, Macquarie

3. A lockdown in charts…

No flights, and no flu!

Source: Chart 1- flightradar.com, Macrobond, Macquarie Macro Strategy

Chart 2 – Source: NSW Health, Macquarie Macro Strategy

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

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

July 2 2021

1. The hiring frenzy…

Setting aside recent lockdowns, ABS data of job vacancies through May 2021 showed a hiring frenzy, with the lowest number of unemployed per job vacancy since records began in 1983. 22% of firms had job vacancies, up from 14% in November 2019. Labour availability remained the most significant constraint on output for a high share of firms.

Source: ABS, Indeed, Bell Potter

Source: ABS, Indeed, Bell Potter

2. It’s tax time…

Growth in Australian company tax revenue has increased significantly amid the sharp increase in commodity prices and resource exports. Total tax receipts for the 11 months to May were $8.5bn higher than expected at the May Budget. This should help the Covid-support stretched government budget.

3. Electricity prices have lost their spark…

We’ve found something going down post Covid – electricity prices! Wholesale prices are down ~58% from the 2019 average & <$70MWh for the first time since 2015.  With heavy investment in renewables such as wind and solar (subsidised by Govt), we don’t expect things to change anytime soon – causing issues for incumbent energy suppliers such as AGL.

Source: Australian Energy Regulator

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

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

June 25 2021

1. Small business, big numbers…

Portfolio holding Xero provides some interesting data on the state of small business in Australia. The graph below shows their small business index, which depicts improvements or declines in the performance of the small business economy relative to the average month, including sales, time to be paid, jobs and wages. As you can see it has been improving solidly over the past year!

If you want to hear more about the small business ecosystem – our small caps analyst, Eleanor Swanson, recently spoke with Airtasker CEO Tim Fung on Ausbiz about the Airtasker platform. Airtasker is one of the highest conviction positions in the Firetrail Australian Small Companies Fund. You can see the interview here.

Xero Small business Index

Source: Xero

2. All in on equities…

The rolling 12-week period of inflows to equities remains significant, and far and away above typical years. There is still over a trillion dollars of retail money in money market funds.

Source: Goldman Sachs, as at 18 June 2021

3. Vaccine update…

Vaccine numbers are becoming even more important for Aussies with the continued lockdowns. Estimates put global jabs at around 40m per day, or around 300m per week! Although at our current pace, Australia is not expected to get to 80% of adults vaccinated until March next year.

See a roundup of the changes other counties are making to travel for vaccinated people below:

  • Canada – from July 5, fully vaccinated travellers won’t need to quarantine
  • UK – have a “green list” of countries with quarantine free travel.  Reports that they will extend to the “Amber” list for those that are vaccinated
  • US – care free! Includes NY lifting all state Covid restrictions
  • EU – opened to many, jabbed or not!
  • HK – cutting the quarantine to 7 days from 14 days for fully vaccinated travellers

Source: Credit Suisse