Investment Week in Review - 17 July 2017

By George van Deventer - July 17, 2017

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

News in Review

Australia

  • Despite a slight gain in June, Australia’s Westpac consumer confidence report continued to highlight the disparity between how businesses and consumers are viewing the economy.  Among consumers, pessimists outnumbered optimists for an eighth-straight month, as heavily indebted households struggle with stagnant wage growth. Business confidence, as measured by the NAB business survey, fell in May, however remained positive.
  • Home financing in Australia bounced back 1% in May following a 1.95% decline in April, although the growth came entirely from owner-occupiers, with the value of investment lending continuing to fall. As a result of the strong growth in May, the total value of outstanding owner-occupier home loans to Australian authorised deposit-taking institutions (ADIs) rose to $1.0395 trillion, a record high.

US

  • Following a dip of 0.1% in May, U.S. consumer prices were unchanged in June as the cost of gasoline and mobile phone services declined further, pointing to benign inflation that could cast doubts on the Federal Reserve's ability to increase interest rates for a third time this year. The market expected a rise of 0.2%.
  • U.S. retail sales unexpectedly fell by 0.2% in June for a second straight month (compared to expectations for a rise of 0.1%), which could temper expectations of a strong acceleration in economic growth in the second quarter.
  • Federal Reserve chair Janet Yellen conveyed a more dovish tone than recent times in her twice-yearly testimony to US Congress, saying that the slowing inflation was only "partly the result of a few unusual reductions" in parts of the consumer price index.

Europe and the UK

  • UK employment rose 175,000 in the three months to May and the unemployment rate fell to a new low of just 4.5%. However, average earnings (including bonuses) rose just 1.8% YoY, down from 2.1% YoY in April, the weakest gain since November 2014.
  • Europe’s Sentix investor confidence index moderated to 28.3 in July but is still tracking at the highest level since the euro was first launched.  The Sentix Investor Confidence Index assesses the relative six-month economic outlook for the euro zone. The data is compiled from a survey of about 2,800 investors and analysts.

China

  • China’s trade surplus with the U.S. for June rose to a 20-month high of US$25.4 billion.  The figure was recorded ahead of talks in Washington next week which are likely to discuss the two nations’ huge trade imbalance.  US President Donald Trump heavily criticised the U.S.’s trade imbalance with China during his election campaign and accused Beijing of a series of unfair trading practices.

Comment

Investors have been speculating on the timing of the US Fed unwinding its balance sheet. In her half yearly testimony to Congress, Yellen did not offer many details on when the central bank will start reducing the substantial bond holdings it acquired during the financial crisis other than saying it would begin later this year. Further, it can be inferred from Yellen’s testimony that low inflation and a lack of meaningful wage growth are becoming increasingly frustrating to the US Fed, both arguably being necessary for further US rate hikes.

Subsequently, the US dollar has been weakening versus other currencies, including the Australian dollar. With our currency already at arguably high levels, the sustainability of further strength is questionable and may continue to hurt industries such as local tourism, where locals may prefer travelling to cheaper overseas destinations.

On a personal note, following a quick (and cheap), holiday to Moscow last week, I couldn’t help myself and conducted some research on the purchasing power of the Australian dollar compared to the Russian Rouble. After visiting a McDonalds in Moscow, I found a Big Mac cost $2.90 compared to $5.00 in Melbourne. While the former was nearly 40% cheaper, quality seemed consistent. Is the Rouble undervalued following their currency collapse in 2014 or is the Australian dollar overvalued? Maybe the truth lies somewhere in between.

The Week Ahead

  • US: Housing Starts (MoM) (JUN)
  • Australia: RBA July Rate Meeting Minutes
  • Europe: ECB Bank Lending Survey, Euro-Zone ZEW Survey (Economic Sentiment) (JUL)
  • UK: Consumer Price Index (YoY) (JUN)
  • China: Retail Sales (YoY) (JUN), Gross Domestic Product (YoY) (2Q)

Company News

  • Asian private Equity firm Affinity Equity Partners has made a rival offer for Vocus Group (VOC), matching a $2.2 billion bid made earlier in June by KKR. Vocus announced that Affinity had put forward a $3.50 per share indicative proposal for the listed telco. Vocus has now decided to offer both firms the opportunity to conduct due diligence on the company.
  • South32 (S32) shares fell after the diversified miner said its Appin coal mine in NSW will remain closed for an “extended” period due to a safety review. Work at the metallurgical coal mine was suspended at the end of June because of concerns about a build up of methane, and the company said a review is needed to ensure the operation’s safety and reliability.
  • Shares in Ardent Leisure (AAD) rallied after the Dreamworld theme park owner reported an improvement in visitation numbers. Ardent said visitor numbers were down 30.5% in June compared to a year ago. However, this was better than the 35.8% decline reported in May. Visitor numbers have been dramatically lower for Ardent Leisure since four people died after the incident in Dreamworld on the Gold Coast last October.

Markets in Review

 

Capital Return

   
 

Weekly

CYTD

FYTD

S&P ASX 200

1.1%

1.8%

0.8%

DOW JONES

1.0%

9.5%

1.3%

S&P 500

1.4%

9.8%

1.5%

UK FTSE100

0.4%

3.3%

0.9%

FRENCH CAC40

1.8%

7.7%

2.2%

GERMAN DAX

2.0%

10.0%

2.5%

JAPANESE NIKKEI

1.0%

5.3%

0.4%

SHANGHAI COMPOSITE INDEX

0.1%

3.8%

0.9%

ASX200 Biggest Movers for the Week

$1 Australian buys you:

Security

LastPrice

AUDUSD

0.7752

AUDGBP

0.5984

AUDCNY

5.2560

AUDJPY

87.7775

AUDEUR

0.6794

AUDNZD

1.0580

ASX200 Sector Performance for the Week


Contact our experts


Other articles


 

Top of Page







IN THIS SECTION:


Rob Southwell

Sydney

Managing Partner and Partner – Private Clients Group


> View profile

John Brazzale

Melbourne

Partner and National Chairman


> View profile

Michael Minter

Newcastle

Managing Partner


> View profile

Bryan Hughes

Perth

Chairman


> View profile

Tom Verco

Adelaide

Managing Principal


> View profile

Ross Walker

Brisbane

> View profile



Partnership fraud

SUCCESS

Paperwork and independent advice saves partnerships from fraud

Discover more

Kia Ora Horse Stud

CASE STUDY

Pitcher Partners fills a Financial Manager gap to keep the business on track

Discover more

Fuel Injection Company Administration

LEADERSHIP

A fuel injection company began life as an Australian public company before being acquired by a UK publicly listed company while in the research and development stage of a “green...

Discover more



@PitcherPartner We've noticed things are getting a little hairy in the PP offices. We've got gents (and some faux-mo ladies) sporti… https://t.co/XPHEVA3CsW