Daily macro

Today’s topics

  • Aus macro (unemployment rate)
  • China macro (GDP, retail sales, industrial production)
  • COVID (Asia)

Aus macro

The unemployment rate declined to 4.9%, well ahead of expectations of 5.1%. That’s an amazing outcome, and speaks to the underlying resilience of the economy, aided by accommodative monetary policy.

Compositionally, the data look good, with underutilisation and underemployment ratcheting lower…

…and the participation rate remaining at near record highs.

However with the slow vaccine rollout we are doing our best to imperil this good news. Our view is that “full employment” sits closer to 4%, suggesting we would still have some way to go, were we not presently beset by periodic lockdowns.

China macro

The monthly China data deluge was generally at or ahead of expectations, although this seeming strength was somewhat belied by the recent reserve ratio requirement cuts (a metric which on net increases the ability of the banking sector to lend more / accelerate credit growth) which in turn would suggest a need for stabilisation and/or support.

The big Y/Y move in nominal GDP below is just the normalisation-post-base-effects story associated with the pandemic.

Perhaps more mildly worrisome, the QoQ trend decline appeared to continue, which again supports the rrr cuts.

In any case, to us it is somewhat all academic, in that our long run view is that China’s commodity demand must decline from present levels, causing problems to Aussie listed producers, whose share prices and market caps do not appear to be remotely pricing this inevitable eventuality in.

COVID (Asia)

Whilst the UK, and to a lesser extent the US are being noticed for a resurgence in daily case rates, it is fair to say that the Delta-variant is now running rampart through south east Asia. Whilst the emerging market equities do appear cheap, at first blush, we’ve chosen to remain underweight for now, fearing that the regions less developed medical capabilities could be overrun.

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