If you've read the Game of Thrones books – there are 5 so far – or watched the HBO series – 8 seasons – you'll be familiar with the phrase, "Winter is coming."
It's the catchphrase for House Stark, the guardians of north Westeros. And it means you best get prepared for a lengthy rough patch ahead.
I read all the books long before HBO got wind of them. But I stopped watching the show around mid-season 6, when the storyline got ahead of the books. I'm still waiting for author George R R Martin to finish penning the last few instalments.
He's a notoriously slow writer. And his books are massive. But I think it's worth waiting to get the plot and dialogue straight from the man himself. Then I'll tune back in for the rest of the Hollywood version.
Anyhow, winter in Westeros is no fun at all. And while we've been spared zombie attacks, I think most Aussies can commiserate with what a rough winter we're emerging from. Atop the tragic loss of lives and severe illnesses, we've endured lockdowns, an economic recession, lost jobs, and wild share price moves on the ASX.
But the worst may well be behind us.
Summer is coming
Noting the relative strength of the Aussie housing market and fairly upbeat consumers, HSBC chief ANZ economist Paul Bloxham put a spin on the Stark's catchphrase in this morning's Australian Financial Review (AFR), saying:
Summer is coming. We've got very low levels of COVID-19 and a reopening economy is a clear sign things are picking up. There's rising consumer sentiment and a pick-up in timely indicators for the housing market.
The housing market and consumer sentiment – both critical drivers of Australia's economy – should receive another boost later today when the Reserve Bank of Australia (RBA) announces its decision on an interest rate cut and new quantitative easing (QE) measures.
Former Future Fund chief executive Mark Burgess is not putting much stock in the power of the rate cut. After all we're likely talking about a 0.15% reduction here, taking the official cash rate from the current record low 0.25% down to a new uber-low 0.10%. That's unlikely to make or break many investment or hiring decisions.
But Burgess has very different view on the RBA's QE decisions (quoted by the AFR):
If they do QE, that would say to the government we've got your back on debt. If they don't participate in QE, then that may lead to a tightening in fiscal settings. In Australia we still have a surplus mindset. The debt-is-bad philosophy could change. Doing QE says we don't have to respond to that debt too soon.
We'll know soon what the RBA decides. But regardless of the central bank's move this month, Australia is in an enviable global position to begin opening back up domestically, and just in time for Christmas.
Unfortunately, the picture is far more dire in the northern hemisphere.
A tale of 2 sectors
In a tale of 2 sectors, manufacturing activity in major northern economies like China, the European Union and the US is up, while brick-and-mortar retailers continue to struggle.
However, the rapidly spreading pandemic could see manufacturing falter as northern winter progresses.
According to the AFR, TD Securities said in a note:
The recovery in the [US] manufacturing sector continues to impress. Indeed, the sector is well entrenched in expansion territory, registering its sixth consecutive month above the 50 mark. Despite October's solid outturn, the US manufacturing sector's outlook is not without a few hurdles. The rapid resurgence in new COVID-19 cases in the US and across the Atlantic constitutes a downside risk to the broader economic recovery.
As for brick-and-mortar retailers, Bloomberg reports:
America's ailing malls suffered a pair of body blows over the weekend as two major landlords followed their ever-growing list of bankrupt tenants into Chapter 11 protection.
Pennsylvania Real Estate Investment Trust and CBL & Associates Properties Inc. sought protection from creditors Sunday, citing pandemic-induced pressures on their tenants and, in turn, themselves. Together the two REITs account for some 87 million square feet of real estate across the U.S., according to court papers.
ASX retail landlords
Australia's near victory over the coronavirus is something to be celebrated. But it certainly hasn't come without costs.
The S&P/ASX 200 Index (ASX: XJO), up 2.03% this morning, is still down 9% in 2020.
But the pain hasn't been universal.
Many ASX online retailers' share prices have soared during the lockdowns and social distancing. Like the Kogan.com Ltd (ASX: KGN) share price, up 180% year-to-date.
But most brick-and-mortar retailers saw a big drop in business during the southern winter as lockdowns bit hard. Many have sought to delay or renegotiate their rental terms, which in turn has put pressure on their landlords.
Take Scentre Group (ASX: SCG), for example. The company owns and runs Westfield retail assets across Australia and New Zealand, which in ordinary times see hundreds of millions of shoppers pass through the doors each year.
With its tenants struggling, Scentre's share price is down 43% for the year.
But as ANZ's Paul Bloxham said, "Summer is coming."
And with the economy reopening, those 3 words could be music to the ears of Australia's beaten down brick-and-mortar retailers and their struggling landlords.
