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September 24 2021

1. Covid support…

Australia’s preliminary September PMIs improved a little, including the new orders components, which again shows the resilience of the labour market through lockdown. And the governments disaster payments have certainly helped, particularly in NSW. Businesses in NSW have received at least $5.3bn in government grants since 19 July (plus other relief for rents, payroll tax, etc). A further $5.5bn has been paid in income support to individuals losing hours of work. Combined, these payments are equivalent to ~7% of NSWs quarterly Gross State Product!

2. Labour outlook…

Fedex reported their 1Q results this week and provided a sobering outlook on labour. Labour inflation is the biggest issue facing the business, with wages up double digits. FEDEX Ground division workers are receiving 16% more than a year ago, and at FEDEX Express locations workers received a 25% increase. The competition for talent in front line workers has driven the wage rates and pay premiums. Portland, Oregon is reportedly running at 65% capacity due to lack of staff, as US parcels are forecast to grow 10%pa to 2026.

This is positive news for portfolio company Seek, as job ad numbers continue to track strongly with September averaging 186k, up slightly on 185k in August

Source: Firetrail, SEEK

3. Europe’s energy crisis…

Global energy prices are skyrocketing due to supply issues, low wind generation and a warm summer in the Northern Hemisphere. The price of natural gas, coal and most commodities you can use for heating and electricity is through the roof. Market participants are on high alert going into winter when utilities typically like to buy stocks of coal and gas just in case winter is extra cold!

There is also a CO2 shortage! Soaring natural gas prices have forced closures of fertiliser plants, the UK’s main source of CO2 used to make drinks fizzy, stun animals for slaughter and cool nuclear power plants.

There are 3 main implications to consider:

  1. Some UK electricity retailers have ceased trading and likely to announce bankruptcy
  2. Government and regulators are redistributing generator super profits to Government and customers
  3. Electricity bills are going up for consumers and manufacturers

The worst case scenario is blackouts. In the 1970s, the UK created a 3 day working week to conserve electricity! Winter is coming…