Investment Week in Review - 15 May 2017

By Marcus Damen - May 15, 2017

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

News in Review

Australia

  • Retail sales slipped 0.1% in March, falling well short of expectations of a 0.3% month-on-month increase. Retail sales have fallen in three out of the last four months, and the year-on-year growth has slowed to 2.1%, the slowest rate of growth in almost four years.
  • Building approvals for dwellings in March showed a 13.4% slide, seasonally adjusted, led by a 22.5% slump in apartment approvals, with a 4.3% drop in the more stable detached house sector. This decline was much steeper than analysts expected, with the consensus view being for a 4% fall overall.

US

  • The Consumer Price Index rose 0.2 per cent in April after March's 0.3 per cent decline, matching analyst expectations. The CPI showed rising prices for shelter, tobacco, energy and food, according to the Labor Department. Excluding the more volatile categories of food and fuel, the "core" index rose a more modest 0.1 per cent.  On a yearly basis, signs of upward price pressures were more muted, with the CPI up just 2.2%, down from the 2.4 recorded in March. The 12-month gain in the core index was also 1.9 per cent, falling a tenth of below the Fed's two per cent target.
  • Retail sales rose 0.4% in April versus expectations of a 0.6% increase. Within this rise there was a drop of 0.2% for sales at department stores yet online retailers reported a rise of 1.4%.
  • Initial claims for state employment benefits dropped 2,000 to a seasonally adjusted 236,000 for the week. Economists polled by Reuters had forecast first-time application for jobless benefits rising to 245,000. Claims have now been below 300,000, a threshold associated with a healthy labour market, for a total of 114 straight weeks.

UK

  • Britain’s manufacturing production fell by 0.6% in April, but the quarterly level increased by 0.3% when compared to the previous 3 month period.
  • The UK’s trade deficit widened by £5.7 Billion during the first quarter of 2017. The increased deficit was led by increases in imports predominately in machinery and transport equipment, oil and chemicals.

Europe

  • The German economy continued to grow in the first quarter of 2017 with gross domestic product (GDP) up 0.6% on the fourth quarter of 2016 after adjustment for price, seasonal and calendar variations.

China

  • Inflation rose quicker than expected in April with annual CPI coming in at 1.2% compared to March’s expansion of 0.9%. April’s CPI was above the forecast of 1.1% for the month but it remained well within the central bank’s comfort zone, giving it room to continue with a gradual pace of monetary policy tightening without hurting economic growth.
  • China’s PPI slowed for a second straight month, coming in at 6.4% versus expectations for a 6.9% rise. The pace further eased from the 7.6% registered in March. Month on month, the PPI edged down 0.4%, the first monthly drop since July last year. Producer prices were set to fall again in May given that the rout in industrial commodity prices had deepened. China’s PPI has stayed in positive territory since September, partly due to the government’s successful campaign to cut industrial overcapacity, which benefited the wider economy.

Comment

The retail sector was particularly on the nose last week with some of the major retailers including Myer, JB Hifi, Harvey Norman and Super Retail among the week’s biggest losers (see below). Weak retail sales figures were the primary driver and it would be interesting to know to what extent (if any) interest rate rises on interest-only loans have had on these figures. We were surprised to learn recently that approximately a quarter of new loan approvals in recent years to owner-occupiers have been on interest-only terms. Not only would some of these now be on a higher interest rate but others would be rolling off their interest-only terms into a higher principal and interest payments.  

The Week Ahead

  • US: Building Permits
  • Australia: Unemployment Rate
  • Europe: Eurozone GDP
  • UK: Retail Sales M/M
  • China: Industrial Production Y/Y

Company News

  • Entertainment & leisure company Ardent Leisure reported that its theme park visitor numbers and revenue has fallen by more than 35% over February and March. This has resulted in the company expecting an EBITDA loss of between $2 million and $4 million for the 12 months ending 30 June 2017.
  • Explosives & fertiliser company Incitec Pivot reported an 11% lift in first half profits to $152.1 million. This was mostly driven by its US operations through a combination of increased production in its industrial chemicals division, with first production starting at its Ammonia plant in Louisiana, and its explosives division which benefited from increased demand from quarrying and construction industries.
  • Building products producer CSR reported a 25% rise in annual net profit, helped by the homebuilding boom in Australia that has increased demand for building products including concrete and cement. CSR announced that its net profit totalled $177.9 million in the year to 31 March 2017, up from $142.3 million for the previous year.

Markets in Review

 

Capital Return

   
 

Weekly

CYTD

FYTD

S&P ASX 200

0.0%

3.0%

11.5%

DOW JONES

-0.5%

5.7%

16.5%

S&P 500

-0.3%

6.8%

13.9%

UK FTSE100

1.9%

4.1%

14.3%

FRENCH CAC40

-0.5%

11.2%

27.6%

GERMAN DAX

0.4%

11.2%

31.9%

JAPANESE NIKKEI

2.3%

4.0%

27.7%

SHANGHAI COMPOSITE INDEX

-0.6%

-0.6%

5.3%

ASX200 Biggest Movers for the Week

ASX200 Sector Performance for the Week

$1 Australian buys you:

Security

LastPrice

AUDUSD

0.7391

AUDGBP

0.5715

AUDCNY

5.0964

AUDJPY

82.9510

AUDEUR

0.6732

AUDNZD

1.0742

 

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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