Investors need not be overly concerned about inflation—yet.

“For inflation to rise meaningfully, we need consumer spending to rebound, companies to start investing in new equipment and buildings to meet the rising demand, and zombie corporations to be replaced by companies that will grow instead of just stomp along,” Anu Gaggar, senior global investment analyst for Commonwealth Financial Network, said in a note.

“All of these outcomes are likely, but they have not happened yet.”

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance said: “At this point, it’s reasonable to assume that inflation will return, asset prices will continue to inflate and it seems as if we are about to repeat the mania and resulting downturn of the 1990’s.

“On the other hand, it is probably too early to make the call that we are in the equivalent of 1999 if we use the Dot Com Crash analogue.

“Instead, it’s much more likely that we are in the 1997 or 1998 year of the analogy, so be careful with the risks you are taking, but also be aware that bailing out of the market may be very painful – especially if the market goes up another 50-100pc and it takes 2-3 more years before the next stock market crash.”

Today’s agenda

Local: Labour force January

Advertisement

Overseas data: Euro zone February consumer confidence; US January housing starts, building permits and import price index, Philly Fed index February

Market highlights

ASX futures down 33 points or 0.5% to 6792 near 4.45am AEDT

  • AUD -0.1% to 77.48 US cents
  • On Wall St near 12.50pm: Dow flat S&P 500 -0.4% Nasdaq -1%
  • In New York: BHP -0.3% Rio -0.1% Atlassian flat
  • In Europe: Stoxx 50 -0.7% FTSE -0.6% CAC -0.4% DAX -1.1%
  • Spot gold -0.8% to $US1779.49/oz at 12.44pm New York time
  • Brent crude +0.8% to $US63.86 a barrel
  • US oil +0.5% to $US60.35 a barrel
  • Iron ore flat at $US166.88 a tonne
  • 2-year yield: US 0.11% Australia 0.11%
  • 5-year yield: US 0.55% Australia 0.63%
  • 10-year yield: US 1.27% Australia 1.40% Germany -0.37%
  • US prices near 12.45pm in New York

From today’s Financial Review

Migration plunge to test stay-at-home profit boom: The extraordinary conditions enjoyed by grocery retailers during the pandemic will not be repeated, says Coles CEO Steven Cain.

Rio vows to find ‘mutually beneficial’ iron ore growth: Rio has recorded its biggest profit in nine years as CEO Jakob Stausholm says his main focus will be on restoring community trust.

Chanticleer: Rio ‘doubles down’ on growth after cash splash: Rio’s $US9 billion dividend will hog the limelight but new chief executive Jakob Stausholm also has an ambitious growth agenda.

Advertisement

Bond markets flash red as yields surge: A sharp rise in bond yields comes with an inflation warning that could catch central banks by surprise, triggering sharp and rapid interest rate hikes.

United States

Retail sales surged by a seasonally adjusted 5.3pc last month, the Commerce Department said. Data for December was revised down to show sales decreasing 1pc instead of 0.7pc as previously reported.

Economists polled by Reuters had forecast retail sales increasing 1.1pc in January. Retail sales increased 7.4pc from a year ago.

Capital Economics’ said the January sales surge “illustrates how quickly the re-opening of parts of the economy and the $US600 stimulus cheques have fed through to stronger spending.

“The faster-than-expected fiscal boost means we now forecast first- quarter GDP growth to be 7.8pc annualised, up from our previous forecast of 6.0pc. However, spending is likely to drop back in February and we are leaving our forecast for GDP growth in 2021 unchanged at an above-consensus 6.5pc.”

TD Securities also has updated its US outlook: “The US economy is forecast to grow by 5.7pc in 2021 and 4.0pc in 2022, a substantial upgrade relative to our December outlook. As a result, the unemployment rate is expected to fall to 3.8pc by the end of 2022, eight-tenths of a percentage point below our prior forecast.”

TD also said the flood of relief money into the US economy is key to its upward revisions.

Advertisement

“Considering the significant upgrades to the economic outlook, we have pulled forward our first Fed rate hike by about six months, to the third quarter of 2023,” TD also said. “We expect the Federal Reserve to wind down its current quantitative easing program next year.”

The Labor Department said its producer price index for final demand jumped 1.3pc last month, the biggest gain since December 2009 when the government revamped the series. That followed a 0.3pc rise in December.

Europe

European shares retreated from near one-year highs on Wednesday as concerns over a possible spike in inflation and rising bond yields prompted a pullback in risk-driven assets, while Gucci owner Kering led losses after posting lower sales.

The pan-European STOXX 600 index closed 0.7pc lower, while London’s mid-cap FTSE 250 lost 1.3pc as data showed British inflation rose a little more than expected in January.

In company news, shares of French conglomerate Kering bottomed out the STOXX 600 as it said sales from its Gucci brand fell 10.3pc in the fourth quarter.

The broader European retail index lost 3.1pc and lagged its peers for the day.

Lucky Strike maker British American Tobacco shed 3.9pc even as it reported a stronger-than-expected annual profit, while Nivea maker Beiersdorf tumbled 5.9pc after it said it did not expect a recovery in profitability in 2021 even though sales should rise.

Advertisement

Swedish cloud computing services provider Sinch AB topped the STOXX 600 after it agreed to buy US-based communications company Inteliquent for $US1.14 billion.

Asia

Lynas gains on report China could ban rare earth exports: The move, as reported, is showing the ‘dangers inherent in Beijing’s dominance’, one industry player says.

Hong Kong stocks ended higher on Wednesday, marking the seventh straight session of gains.

The Hang Seng index rose 1.1pc to 31,084.94, the highest close since June 2018, while the China Enterprises Index increased 1.6pc to 12,228.63.

The Hang Seng Tech Index surged 2.3pc and the Hang Seng sub-index tracking information technology firms climbed 1.9pc.

Brokers said an improving pandemic situation and expectations the bull run will continue when China markets reopen helped lift investor sentiment.

China’s mainland markets are scheduled to reopen on Thursday after a week-long break.

Advertisement

MSCI’s broadest index of Asia-Pacific shares outside Japan ticked up 0.6pc, while Japan’s Nikkei slipped 0.6pc.

Currencies

SMSFs pile into bitcoin as it tops $US50,000: Sophisticated high net worth and SMSF investors are joining Gen Z traders in buying bitcoin as enthusiasm reaches a fever pitch.

Commodities

Commodities supercycle could break dividend records: The beginning of a new commodities supercycle, which Glencore is the latest to endorse, could see dividend records tumble as the major diversified miners make the most of soaring prices and cash flows.

Gas plan up in the air after Nationals coal ambush: Plans by the government to broaden the remit of the Clean Energy Finance Corporation to include gas-fired power are in disarray.

Benchmark copper on the London Metal Exchange was down 0.2pc at $US8390 a tonne at 1703 GMT. Prices of the metal used widely in the power and construction industries hit a nine-year high at $US8437 a tonne on Tuesday.

Low inventories have fuelled concern about availability on the LME market, creating a premium for cash copper over the three-month contract. The premium rose to a five-month high of $US29 a tonne on Monday, and was last around $US13 a tonne.

Advertisement

“We upgrade our… 6-12 month (forecast) to $US10,000 a tonne, based on our updated copper model balances, which point to a deep deficit during 2021 and low inventories for years to come,” Citi analysts said in a note.

Australian sharemarket

ASX falls 0.5pc as disappointing earnings offset miners: The Australian sharemarket closed slightly lower on Wednesday as a number of results disappointed market expectations, offsetting big gains from the major miners.

Investors lash disclosure softening: Investors and Labor lashed the government’s softening of continuous disclosure laws, warning it undermines the integrity of the sharemarket and removes a check on directors.

Street Talk

Blackstone wears the Crown in casino mess

Garden supplies retailer Flower Power searches for strategic investor

IAG-backed subscription car biz Carbar bankers up for capital search

Source