Investment Week In Review - 15 August 2016

By Marcus Damen - August 15, 2016

The RBA has frequently indicated that it would prefer to see the Australian dollar lower and it would have been hoping that its two recent rate cuts would have helped to achieve that.

News in Review

  • Oil prices and oil-linked currencies strengthened over the week following comments from Saudi Arabia’s energy minister indicating the kingdom could participate in co-ordinated action to ‘take any action to help the market rebalance’.
  • U.S. retail sales were flat in July as Americans cut back on purchases of clothing and other goods, pointing to a moderation in consumer spending that could temper expectations of an acceleration in economic growth in the third quarter. 
  • China’s CPI inflation edged down to 1.8% in July from 1.9% in June, with food inflation easing as lower pork prices offset the impact of the rising cost of vegetables following recent heavy rain and flooding. While the pace of CPI growth is well below the government’s annual target of 3%, low inflation provides China’s policymakers plenty of scope to ease monetary policy to stoke economic growth.
  • The NAB business survey found that while conditions in Australia fell in July, from 11 to 8 points, they are still well above the long term average. The confidence is also broad-based in nature, with conditions remaining positive in all states and territories except Western Australia. NAB also updated its economic forecast, expecting growth to remain resilient at 2.9% in 2016 and 2017. Both global and domestic disinflationary pressures are expected to keep CPI inflation below the 2-3% target range for an extended period.
  • The Westpac-MI consumer confidence index recovered slightly to 101.1 in August from July’s 99.1, indicating that there are now more people in Australia optimistic about the economy than pessimistic. Over the last thirty months there have only been eight when optimists have outweighed pessimists with three of those months figuring in the last four. In particular, prospects for the housing market appear to have been boosted by the recent rate cuts. The confidence of those respondents who hold a mortgage lifted by 7%.
  • Australia’s mean inflation expectations for August fell to 2.2% from 2.4% in July, giving credence to the RBAs August interest rate cut and confirming the ongoing presence of a disinflationary environment in the domestic economy. 
  • China’s trade surplus widened to $52.3 billion in July from $48.1 billion in June. Exports rose 2.9% YoY, which was a slight improvement on June. The wider surplus was largely attributed to weakness in imports, which fell 10.5% YoY versus expectations of a 7.0% decline.  The decline in imports can be expected given the Chinese economy’s gradual transition from industrial lead to consumer and services driven growth. 
  • In the UK, the latest RICS survey showed British housing market activity weakened the month following the ‘Brexit’ vote, with gauges of house price growth and transactions falling to the lowest level in three years.

Comment

The RBA has frequently indicated that it would prefer to see the Australian dollar lower and it would have been hoping that its two recent rate cuts would have helped to achieve that. The charts below, however, illustrate that these efforts have been futile with the dollar strengthening against both the US dollar and the Euro since just prior to the first of the rate cuts in May. A rebound in commodity prices will have something to do with this strength, but so too will the 'lower for longer' expectations for global interest rates that continues to prevail as global economic data remains soft.  

 

Source: http://fxtop.com/en/historical-exchange-rates

The Week Ahead

  • Australia: RBA August Meeting Minutes, Unemployment Rate (JUL) 
  • US: Consumer Price Index (YoY) (JUL)
  • UK: Retail Sales (YoY) (JUL), ILO Unemployment Rate (3M) (JUN)
  • Europe: Euro-Zone ZEW Survey (Economic Sentiment) (AUG)
  • China: China July Property Prices

Company News

  • The Australian Competition and Consumer Commission (ACCC) has announced it will not oppose the proposed acquisition of Good Guys by JB Hi-Fi. The ACCC has acknowledged that "JB Hi Fi has traditionally focussed on selling consumer electronics, with stores in shopping centres or CBDs
  • Commonwealth Bank became the first of Australia’s major banks to report their earnings results for the 2016 financial year. The bank reported a 3% lift in cash net profit after tax (NPAT) to $9.45 billion, a record amount for any of the big four banks. It was, however, slightly below consensus forecasts.
  • China’s online retail giant Alibaba posted a strong result for Q2 2016 with the company claiming revenue surged 59% year-over-year to $4.84 billion, which was stronger than the $4.54 billion the market had expected.

Markets in Review

Capital Return

   
 

Weekly

FYTD

CYTD

S&P ASX 200

0.6%

5.7%

4.4%

DOW JONES

0.2%

3.6%

6.6%

S&P 500

0.1%

4.1%

6.9%

UK FTSE100

1.8%

6.3%

10.8%

FRENCH CAC40

2.0%

6.2%

-3.0%

GERMAN DAX

3.3%

10.7%

-0.3%

JAPANESE NIKKEI

4.1%

8.6%

-11.1%

SHANGHAI COMPOSITE INDEX

2.5%

4.1%

-13.8%

ASX200 Sector Performance for the Week

ASX200 Biggest Movers for the Week

 

$1 Australian buys you:

   $0.7652
£0.5830
¥5.0881
¥77.3300
€0.6870
$1.0632

 

 

 

 

 

 

 

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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