Investment Week in Review - 13 June 2017

By Marcus Damen - June 13, 2017

Pitcher Partners' wrap up of issues impacting the markets over the last week.

News in Review

Australia’s economy grew 0.3% in the first quarter of 2017, slowing the annual rate to 1.7% (from 2.4% to December 2016). This growth rate was the slowest since the tail end of the Global Financial Crisis.  The trade sector was the biggest drag with exports down 2.6% for the quarter, led down by iron ore and coal shipments which were interrupted by Cyclone Debbie.

As widely expected by economists and the market, the RBA held its monthly cash rate at 1.5% for the 10th month in a row. Minutes from the central bank’s previous meeting revealed board members hold concerns about slow wages growth and the rising risks within household balance sheets (with household credit outpacing household income).  

Australia’s trade surplus was reported at $555 million in April, well below market expectations with export growth slowing to 17.8% YoY from 29.3% YoY in March. This largely reflected disruptions caused by Tropical Cyclone Debbie, rather than any change in the trading environment.

China’s trade balanced widened modestly to USD $40.8 billion in May as Import growth surpassed market expectations, rising to 14.8% YoY (from 11.9% YoY).

The ECB's president Mario Draghi announced that central bank would be willing to extend its QE strategy, both in duration and budget, if required. The bank opted to hold interest rates at 0% and downgrade its inflation forecasts despite revising up its growth outlook.

A leading indicator of the US economy’s health, The Institute for Supply Management’s (ISM) non-manufacturing PMI index, printed a reading of 56.9 for the month of May, missing expectations but still registering the 89th consecutive month of grow in the non-manufacturing sector.

Comment

So we did manage to limp across the line for another quarter of GDP growth (to 31 March) in the process become the world-record holder for the longest streak without a technical recession (two consecutive quarters of negative GDP growth).  Further to our commentary last week that pointed out that accumulation in household debt was one of the major drivers of this record run (as it was with the Netherlands when they first became the record holder), another interesting question to ask is how much our GDP has been driven by population growth (including immigration) and therefore what it means to us on an individual basis.   GDP growth per capita is more subdued than the headline growth rate, due to our population growth rate which is currently running at approximately 1.4% per annum.  With the headline rate of annual GDP growth to March at only 1.7% this implies that GDP per capita has been relatively flat for the last year, possibly helping to explain why wages growth in the economy remains quite weak at present also. 

The Week Ahead

US: Retail Sales (MoM) (May)
Australia: Westpac Consumer Confidence (June)
German: Consumer Price Index (YoY) (May)
UK: Consumer Price Index (YoY) (May)
China: Retail Sales (YoY) (May)

Company News

  • Vocus Group received a $3.3 billion takeover plan from American private equity giant Kohlberg Kracvis Roberts (KKR). Vocus, which has taken a hammering in recent months, jumped by more than 20% after it emerged that the non-binding offer was worth $3.50 cash per share. KKR would shoulder Vocus’ $1.1 billion debt in a move which boosts the value of the deal to $3.3 billion. The deal would be conducted via a scheme of arrangement and will require a tick from the Foreign Investment Review Board. The $3.50 per share bid represented a 22% premium to the $2.86 that Vocus shares closed at on Tuesday. The stock closed yesterday up 62¢, or 21.68 per cent, at $3.48.
  • Bendigo and Adelaide Bank fell after it was seen to be opportunistically changing the accounting treatment of its home “equity release” division. The second-tier lender dived 49¢ to a seven-month low of $10.70 after it raised eyebrows by announcing it was changing its treatment of “cash earnings” to exclude any unrealised gains or losses from its investment in Homesafe, a firm that offers a service similar to a reverse mortgage, but with equity upside for the bank.
  • Myer executed another step in its turnaround strategy cutting its footprint in its Docklands National Support Office by more than one-third. Myer had a lease until 2022 over the 28,000-square-metre building but has "surrendered" its claim on 10,000 square metres now deemed surplus. Myer is nearly halfway through a five-year turnaround strategy to fix its ailing bottom line. More than 50 jobs have been cut from its customer contact centre and digital services functions this year, with more job losses expected.

Markets in Review

 

Capital Return

   
 

Weekly

CYTD

FYTD

S&P ASX 200

-1.9%

0.2%

8.5%

DOW JONES

0.3%

7.6%

18.6%

S&P 500

-0.3%

8.6%

15.9%

UK FTSE100

-0.3%

5.4%

15.7%

FRENCH CAC40

-0.8%

9.0%

25.1%

GERMAN DAX

-0.1%

11.6%

32.4%

JAPANESE NIKKEI

-0.8%

4.7%

28.5%

SHANGHAI COMPOSITE INDEX

1.7%

1.8%

7.8%

ASX200 Biggest Movers for the Week

$1 Australian buys you:

Security

LastPrice

AUDUSD

0.7533

AUDGBP

0.5937

AUDCNY

5.1204

AUDJPY

83.0890

AUDEUR

0.6725

AUDNZD

1.0454

ASX200 Sector Performance for the Week

 


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Adelaide

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