Investment Week In Review - 11 April 2016

By Marcus Damen - April 11, 2016

The biggest leak in history, dwarfing that of WikiLeaks, has placed many well-heeled people with some awkward questions to answer.

News in Review

  • The largest data leak in history of 11.5 million files from the database of the world’s fourth largest offshore legal firm Mossack Fonseca was duly christened the Panama Papers.  

  • In the US the non-manufacturing ISM beat market expectations, rising 1.1pts to 54.5 in March – the best reading since December.  Any reading over 50 is expansionary.  Less positively, the employment index only managed a 0.6pt improvement to 50.3, leaving it well below the levels seen in the closing months of 2015 and suggestive of an impending slowdown in employment growth (albeit still growing).

  • The RBA announced its decision to retain its cash rate at 2%. Of noteworthy in the accompanying statement, “Over the period ahead, new information should allow the Board to assess the outlook for inflation and whether the improvement in labour market conditions evident last year is continuing. Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand". This reinforces the message conveyed in the March meeting; the evolution of the RBA’s policy will be centred on the performance of the labour market. 

  • Australia's trade deficit unexpectedly widened to $3.4 billion in February, continuing a trend of deterioration that has been in place for two years. Whilst iron ore exports rose in the month (consistent with higher spot prices) there was relatively broad weakness among other export categories.  According to the Australian Bureau of Statistics (ABS), goods and services exports fell by 1% to $25 billion.

  • According to the Housing Industry Association’s (HIA) New Home Sales Report, Australian residential real estate sales tumbled 5.3% in February 2016. In a state-by-state breakdown, detached house sales fell the most, down 12.1% in Queensland, followed by a 7.4% decline in NSW. Detached house sales dropped 3.5% in South Australia, 1.8% in WA and 1.7% in Victoria.

  • German industrial orders declined 1.2% in February, the largest monthly fall in six months and well below expectations of a 0.2% rise in Europe’s largest economy.  In more positive news for the Eurozone, retail sales increased unexpectedly in February. Growing demand in France and Spain helped offset a fall in Germany.

  • Japan’s Labour Survey (for establishments with five or more employees) revealed a 0.9% year on year rise in the per-capital total cash earnings, a 0.6% year on year rise in scheduled base pay and 1.9% year on year employment growth in February.

  • China's foreign exchange reserves surprisingly rose in March; the first monthly gain since November, as cooling expectations of US interest rate hikes eased pressure on the yuan.

  • The Caixin China services purchasing managers' index rose to 52.2 in March from 51.2 in February.  China's official nonmanufacturing PMI, a competing gauge, also showed faster growth in March indicating some validation of the Chinese government’s efforts to prop up growth in the world’s second largest economy.

Comment

The biggest leak in history, dwarfing that of WikiLeaks, has placed many well-heeled people with some awkward questions to answer.  Aside from the general insight into how the rich and powerful exploit secretive offshore tax havens, the papers specifically reference 12 current or former heads of state and more than 60 relatives and associates of heads of state and politicians.

The damaging information has already claimed the scalp of the Prime Minister of Iceland, with the UK Prime Minister David Cameron fighting for credibility.  China’s Xi Xinping and Russia’s Vladimir Putin have also been implicated and it will be interesting to see how this pans out over coming months.

PPIS Seminar – Where to From Here?
2 May 2016

With market volatility remaining high, constant fears about the collapse of China and predictions of oil hitting US$10bbl you could easily be forgiven for asking if there is any upside to global markets. To find out if it is all doom and gloom or just a bumpy ride to new market highs we have asked Nikki Thomas, Magellan portfolio manager, and James Holt, Perpetual Investment Specialist, to shed light on these topics at our upcoming client seminar..  

The Week Ahead

  • US:  Retail Sales, Initial Jobless Claims
  • Australia: Unemployment Rate, Investment Lending for Homes
  • Europe: Consumer Price Index - Core
  • China: Consumer Price Index, Gross Domestic Product
  • Japan: Industrial Production, Eco Watchers Survey: Outlook

Company News:

  • Both the independent board and independent expert KPMG have recommended the Dexus takeover of Investa Office Fund (IOF), citing access to long-term growth opportunities, diversification of risk and significant income accretion.  Assuming this takeover proceeds, clients holding IOF are expected to receive 0.4240 Dexus Shares and $0.8229 cash for each Investa Office Shares held. 

  • Telstra has signed a $1.6 billion contract with NBN to provide planning, design, construction and construction management services within the existing HFC footprint. The new contract complements existing agreements between Telstra and NBN.

  • The CEOs of Australia's biggest banks have dismissed Labor's call for a royal commission into the financial sector as the Federal Government rules out launching its own.  ANZ chief executive Shayne Elliott said there had been a number of recent inquiries into the industry and a royal commission could damage Australia's standing among global investors.  

  • Fortescue Metals Group is looking to cut more costs as it scraps its contract with Downer EDI at Christmas Creek and moves to a full owner-operator model. Fortescue did not say whether employees from Downer would move across to the company when the current mining services contract in the Pilbara ends on September 30.

  • Macquarie Atlas Roads says it is well positioned to benefit from improving economic conditions in France and the US. The company, which recently divested two of its six assets, said it is continuing to see traffic growth at its Autoroutes Paris-Rhin-Rhone (APRR) network in France and the Dulles Greenway in the US.

     

Markets in review

 

Capital Return

   
 

Weekly

CYTD

FYTD

S&P ASX 200

-1.2%

-6.8%

-9.6%

DOW JONES

-1.2%

0.9%

-0.2%

S&P 500

-1.2%

0.2%

-0.8%

UK FTSE100

0.9%

-0.6%

-4.9%

FRENCH CAC40

-0.4%

-7.2%

-10.2%

GERMAN DAX

-1.8%

-10.4%

-12.1%

JAPANESE NIKKEI

-2.1%

-16.9%

-21.8%

SHANGHAI COMPOSITE INDEX

-0.8%

-15.7%

-30.2%

$1 Australian buys you:

   $0.7534
£0.5358
¥4.8791
¥81.9135
€0.6628
$1.1100

Biggest winners and losers last week - by sector

 

Biggest winners and losers last week - by company

Disclaimer

 
This material is intended for the use of the clients of Pitcher Partners Investment Services only.  It is current at the date of preparation, but may be subject to change.  This document does not constitute financial product advice.  It is of a general nature and has been prepared without taking into account any person’s objectives, financial situation or needs.  Before acting on the information you should consider the appropriateness of it having regard to your objectives, financial situation or needs and seek independent advice.  You should obtain and consider a Product Disclosure Statement in relation to any financial product before making any decision about acquiring the product.  To the maximum extent permitted by law, Pitcher Partners Investment Services Pty Ltd and its representatives will not be liable for any loss or damage incurred by any person directly or indirectly for any use or reliance on this document.

 


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