Investment Week in Review - 15 March 2016

By Michelle Heffernan - March 15, 2016

The weak economic data out of Japan was particularly interesting given the level to which the Bank of Japan has supported the economy in recent decades

News in Review

  • The European Central Bank cut all three of its interest rates and expanded its asset-buying program on Thursday, delivering a bigger-than-expected cocktail of actions to boost the economy and stop ultra-low inflation becoming entrenched. The ECB cuts its deposit rate deeper into negative territory, charging banks more for parking their cash, and increased monthly asset buys to 80 billion euros from 60 billion euros, exceeding expectations for an increase to 70 billion. Surprising markets, it cut its main refinancing rate to zero from 0.05%.

  • Chinese trade data for February indicated steep declines in both imports and exports. From a year earlier exports fell by 25.4%, more than doubling expectations for a decline of 12.5%. Not only was it far steeper than the 11.2% contraction seen in January, it was also the largest seen since May 2009. Imports slid by 13.8%, again below forecasts for a drop of 10.0%.

  • China’s Consumer Price Index (CPI) rose 2.3% in February, the most since mid-2014, as food costs jumped amid the week-long Lunar New Year holidays, where millions binge on roast pork, duck, seafood and vegetables. Therefore the rise is likely temporary and unlikely to limit monetary policy. 

  • Bank of Japan Governor Kuroda said on Monday the central bank will watch the effects of negative interest rates on the economy for the time being, suggesting that no immediate expansion of stimulus was forthcoming. He also maintained his optimism on Japan's economic outlook, countering criticism that the BOJ's decision in January to adopt negative rates has had little positive effect on markets.

  • Japan's economy contracted at a slower pace than initially estimated in the last quarter of 2015, though the nation still appears in danger of falling into another recession despite Prime Minister Shinzo Abe's efforts to boost growth. Revised figures for gross domestic product, the broadest measure of a nation's economic activity, showed that the economy shrank from the previous quarter at an annualized pace of 1.1%, instead of 1.4% as reported in preliminary data.

  • The NAB Business Survey for February confirms continuing non-mining momentum in early 2016, with service sectors generally driving the improvement to date. In contrast, the outlook for the global economy remains downbeat and there is still much fear of contagion. 

Comment

The weak economic data out of Japan was particularly interesting given the level to which the Bank of Japan has supported the economy in recent decades.  Despite interest rates of less than 1% since the early 1990s, massive stimulus pumped into the economy in the last few years and aggressive cutting into negative interest rate territory in recent months, inflation and growth remain non-existent.  This highlights the challenges associated with managing an economy with a declining population and a very high level of government debt.

It also adds to growing concerns that central bank stimulus programs are not achieving desired results globally and this concern was underscored last week when the markets failed to respond positively to the European Central Banks larger than expected rate cuts and stimulus measures.  

The Week Ahead

  • US:  The Federal Reserve Open Market Committee meet to set the Federal Funds Rate. Inflation, Retail Sales and Producer Price Index data for February will be released. The Philadelphia Fed Manufacturing Index will be released. 
  • Australia:  The February Unemployment Rate will be released. Minutes of the last RBA Monetary Policy Meeting will be released.
  • U.K.: Employment data for January will be released. The Treasury will release the Annual Budget. The Bank of England meet to set the Official Bank Rate.
  • Japan:  The Bank of Japan will hold its press conference and release its Monetary Policy Statement.

Company News:

  • BHP Billiton has quashed hopes of a sustained rally in the iron ore price, saying steel demand growth in China will remain weak in the short term, and that the outlook remains challenging. The comments, from BHP’s Western Australia Iron Ore business asset president Edgar Basto at the Global Iron Ore and Steel Forecast Conference, come amid a surge in iron ore prices.

  • Regis Healthcare will buy six aged care facilities from Masonic Care for $163m. Regis said the acquisition includes 711 operational places at facilities across four locations in Queensland, and will be funded by cash reserves and existing debt facilities.

  • Online retailer Ruslan Kogan has acquired Dick Smith’s intellectual property from receivers Ferrier Hodgson. Mr Kogan has bought the Dick Smith brand and trademarks, its online business in Australia and New Zealand, customer databases and websites for an undisclosed sum.

  • APA Group has announced an all cash bid for Ethane Pipeline Income Fund (EPX) which has been recommended by EPX independent board members. The $1.88 per share offer implies a total cash consideration of $122m (net of APA's current 6.08% stake).

  • China’s largest train manufacturer won a billion-dollar deal to supply Chicago with rolling stock, as Beijing seeks to create high-tech firms capable of competing for lucrative contracts with foreign giants. CRRC Corporation, the result of a 2014 merger between two state-owned firms and the largest train maker in the world by revenue, signed a $1.3-billion contract to manufacture 846 subway carriages for the Midwestern US city, replacing around half its fleet.

     

Markets in review

 

Capital Return

 

Weekly

CYTD

FYTD

S&P ASX 200

1.5%

-2.4%

-5.4%

DOW JONES

1.2%

-1.2%

-2.3%

S&P 500

1.1%

-1.1%

-2.0%

UK FTSE100

-1.0%

-1.6%

-5.8%

FRENCH CAC40

0.8%

-3.1%

-6.2%

GERMAN DAX

0.1%

-8.5%

-10.2%

JAPANESE NIKKEI

-0.4%

-11.0%

-16.3%

SHANGHAI COMPOSITE INDEX

-2.2%

-20.6%

-34.3%

$1 Australian buys you:

   $0.7485
£0.5246
¥4.8585
¥84.8930
€0.6701
$1.1200

Biggest winners and losers last week - by sector

sector performance chart

 

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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