Pitcher Partners' wrap up of issues impacting the markets over the last week.
News in Review
The Reserve Bank of Australia held the official cash rate at 1.50%; a move widely expected by the market and economists. The board states that leaving their stance on monetary policy unchanged is consistent with the level of sustainable growth they’re seeing within the economy at this time.
Retail sales slowed in the month of December, falling -0.10% over the month. Analysts were expecting a 0.30% rise over the period. The drop was largely due to a contraction in sales of household goods.
The NAB Business Confidence Index was positive, albeit lower in Q4 2016, falling one point to +5 on a scale where a reading above zero implies improving conditions.
New home sales increased in December according to the Housing Industry Association, rising by 6.4% during the month. While there is a general expectation of a downturn in the Australian construction industry, the recent new home sales result provided some encouragement that any downturn may be softer than expected.
The US Commerce department reported that the US trade deficit narrowed slightly in December, falling 3.2% on the month. However for 2016, the deficit rose 0.4% to $502.3 billion – the largest annual imbalance since 2012.
A US appeals court upheld the suspension on Donald Trump’s controversial travel ban that saw citizens from a number of Muslim majority countries unable to enter the US. Justice Department lawyers have argued that the President has the constitutional power to restrict entry into the US, and as such it is increasingly likely that the government will take its appeal to the Supreme Court.
Trump also stated that he plans to announce the most ambitious tax reform plan since the Reagan era in the next few weeks, however provided no details.
Europe & the UK
Polls show that Marine Le Pen, the controversial leader of the National Front Party, is a favourite to win the first round of the French election after scandal rocked Francois Fillon’s campaign. This political instability has rattled European bond markets, with the French 10 year government bond yield spread over German 10 year bunds reaching multi-year highs.
Greek bonds sold off sharply due to fears that the country will not be able to reach an agreement with creditors regarding a 7 billion Euro bailout package. The International Monetary Fund refused to sign onto the aid programme unless further debt relief was granted to Greece.
China recorded a better than expected export figure with their trade surplus rising CNY47.25 billion higher than expected. China’s trade surplus is now a total of CNY 354.5 billion.
Global markets were generally volatile throughout the week amid differing political announcements. European markets dealt with uncertainty surrounding the potential of a Marine Le Pen victory as well complications surrounding the EU/Greece bailout negotiations. Trump’s tax reform comments delivered late in the week spurred a rally in Asian and local markets amid the expectation that such reforms should be pro-business. The local market ended positive for the week, rallying since Tuesday after the RBA provided their view that they expect 3% GDP growth over the short term bolstered by further increases in resources exports.
The Week Ahead
US: CPI ex Food & Energy
Australia: Unemployment Rate
China: CPI YoY
Europe: GDP SA QoQ
UK: CPI YoY
Rio Tinto beat profit and dividend estimates after reporting $US 5.1 billion in underlying profit and a $US 1.70 fully franked dividend. In addition the company announced three new members to its board.
Toll road operator Transurban’s first half net profit rose 36% boosted by acquisition and high traffic growth across its network. Proportional toll revenue was 11% higher for the half year at $1.07 billion.
AGL Energy returned to profit in the first half of the financial year, one year after restructuring the business to exit natural gas and exploration. AGL now expects underlying earnings this fiscal year to be in the top half of its $720-800 million guidance range it provided to the market in August.
The shopping centre focused REIT, SCA Property Group, reported organic Net Operating Income growth of 2.9% in their half year results. Operating conditions have remained tough amid slow retail sales within their underlying portfolio of retail assets.
Markets in Review
S&P ASX 200
SHANGHAI COMPOSITE INDEX
ASX200 Sector Performance for the Week
ASX200 Biggest Movers for the week
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