In Australia, wages growth in the December quarter (tomorrow) is expected to have remained weak at 0.3% quarter on quarter or 1.1% year on year, December quarter construction (tomorrow) is expected to rebound by 5% quarter on quarter, business investment (Thursday) is expected to have rebounded by 3.5% quarter on quarter and investment plans are expected to be revised up sharply and credit data for January (Friday) is expected to show a further pick in housing credit growth.
The December half Australian earnings reporting season will wrap up, with around 65 major companies due to report including: Adelaide Brighton, Oil Search and Worley (today); Blackmores, Nine and Woolworths (tomorrow); Qantas, Ramsay Health and Stockland (Thursday); and Aristocrat, AfterPay and Harvey Norman (Friday).
Shares remain at risk of a short-term correction after having run up so hard in recent months – with the back up in bond yields possibly being a trigger. But timing corrections will be hard and looking through the inevitable short-term noise, the combination of improving global growth helped by more stimulus, vaccines and still low interest rates augurs well for growth assets generally in 2021.
We are likely to see a continuing shift in performance away from investments that benefitted from the pandemic and lockdowns - like US shares, technology and health care stocks and bonds - to investments that will benefit from recovery - like resources, industrials, tourism stocks and financials.
Global shares are expected to return around 8% but expect a rotation away from growth heavy US shares to more cyclical markets in Europe, Japan and emerging countries.
Australian shares are likely to be relative outperformers helped by: better virus control enabling a stronger recovery in the near term; stronger stimulus; sectors like resources, industrials and financials benefitting from the rebound in growth; and as investors continue to drive a search for yield benefitting the share market as dividends are increased resulting in a 4.5% grossed up dividend yield. Expect the ASX 200 to end 2021 at a record high of around 7200.
Ultra-low yields and a capital loss from a 0.75% or so rise in yields are likely to result in negative returns from bonds.
Unlisted commercial property and infrastructure are ultimately likely to benefit from a resumption of the search for yield but the hit to space demand and hence rents from the virus will continue to weigh on near term returns.
What about property prices?
Australian home prices are likely to rise another 5% to 10% this year and next being boosted by record low mortgage rates, government home buyer incentives and the recovery in the jobs market but the stop to immigration and weak rental markets will likely weigh on inner city areas and units in Melbourne and Sydney. Outer suburbs, houses, smaller cities and regional areas will see relatively stronger gains in 2021.
And returns on bank deposits?
Cash and bank deposits are likely to provide very poor returns, given the ultra-low cash rate of just 0.1%.
What about the Aussie dollar?
Although the $A is vulnerable to bouts of uncertainty and RBA bond buying will keep it lower than otherwise, a rising trend is still likely to around $US0.80 over the next 12 months helped by rising commodity prices and a cyclical decline in the US dollar.
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