Pitcher Partners' wrap up of issues impacting the markets over the last week.
News in Review
The RBA held the cash rate unchanged at 1.5% for the sixth straight meeting, as broadly expected.
Australia’s month on month retail sales increased by 0.4% in January after falling 0.1% in December in seasonally adjusted terms. The main contributors being household goods (+1.4%) and cafes, restaurants and takeaway food services (+1.1%).
Home financing in Australia rose unexpectedly in January. The number of home loans issued by Australian authorities rose by a seasonally adjusted 0.5% in January, following a gain of 0.4% gain the previous month. Analysists had forecast a month on month decline of 0.9%.
Non-farm payrolls increased by 227,000 in February, beating analyst forecasts of roughly 170,000, while wages increased 0.2% and January wages growth was also revised upwards to 0.2%.
The unemployment rate decreased slightly (to 4.7%) from the previous month, in line with expectations. The employment number was led by most leading industries except retail trade employment which edged down for the period.
Europe & the UK
The British parliament released their annual budget on Wednesday morning outlining the spending plans for the year ahead. The main take away points were an increase in social funding in order to combat the aging population and a relief for some businesses facing a large increases in taxes. Overall, the budget delivered was lowering spending and borrowing as Britain plans for a potentially arduous Brexit.
Britain announced that month on month manufacturing fell by 0.9%, worse than the expected 0.6% drop. This is in comparison to a 2.2% increase from the previous month. The leading cause of the drop was a fall of 13.5% manufacturing in Pharmaceuticals which is typically a volatile sector.
The European Central Bank (ECB) maintained their benchmark interest rate of 0% for the time being. The bank announced they would be continuing to purchase assets at a lowered rate from April (down to 60 billion Euro per month) with plans of maintaining the stimulus for the remainder of the year
China’s consumer price index (CPI) advanced 0.8% in February from a year ago, after climbing 2.5% in January. This was lower than the expected result of 1.9%. On a monthly basis CPI inflation declined by approximately 0.2%.
Producer prices, however, rose by the greatest amount (7.8% year on year) since the September 2008.
The trade balance came in below expectations for February with a negative balance of 60 billion yuan. Analysts had expected a positive balance of 173 billion yuan. This came as China’s imports increased by 45% on a year on year analysis
The divergence between Chinese consumer prices and producer prices is fascinating and an issue to be quite mindful of. If price pressures for producers are rising sharply but are not being passed through to consumers, then margins are being squeezed and this is not likely sustainable. Should price pressures continue, then these would be expected to flow through to consumer prices at some point and could drive inflationary pressures to all of China’s global customers. Further weakness in the yuan could help alleviate this issue, however a pickup in inflation could bring some upwards pressure to the yuan, eliminating this cushion.
The Week Ahead
US: Fed funds rate, Retail sales m/m, CPI m/m
Australia: Unemployment rate
China: Industrial production y/y
Europe: ECB President speech
UK: Official bank rate, Monetary policy summary
After the ACCC paper on the merger of Tabcorp and Tatts which stated the concerns about electronic gaming machines, Tabcorp has committed to divesting from Odyssey Gaming Services.
The Big Four banks heads were brought before a committee in parliament during the week, with the focus being on wealth management businesses and in particular insurance arms of these. The committee continues to look into the mismanagement of claims by insurers.
Ardent Leisure announced that their earnings were down 35% for February which shows an increase from January’s announcement of a 50% decline in revenue. Attendance was also down 33% for February.
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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