Investment Week in Review - 20 March 2017

By Michelle Heffernan - March 20, 2017

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

News in Review

Global

  • The meeting of the G20 leaders showed strong agreement in the areas of cooperation on foreign exchange in order to avoid volatility in currencies, but less cooperation in the area of trade. The US representative commented that he agreed with free trade in principle but some trade agreements may need to be renegotiated.
  • Saudi Arabia informed OPEC that it had raised oil output back above 10 million barrels a day, reversing a portion of the cuts that had triggered rise in the price of oil over the last few months. Even after factoring in this cut, the figures show that Saudi Arabia has cut more than is required by OPEC, whereas Russia, Iraq and United Arab Emirates are yet to deliver all the cuts promised.

Australia

  • Australian unemployment rose by 0.2% to 5.9% during February. The change was led by a decrease in part time workers of 33,500 which was not met by the increase of full time workers at 27,100 people. Total hours worked declined by 1.2%, suggesting there is spare capacity in our economy.

US

  • As expected the US Federal Reserve increased the target interest rates to 0.75%-1.00%. Markets have priced in two more rate hikes during 2017 with at least three expected by the end of 2018. The Federal Open Market Committee (FOMC) cited that inflation was rising close to its 2% target rate and a strengthening labour market as the reason for the move.
  • Inflation increased by 0.1% during the month, higher than the expectations of no rise. Energy services led the slight rise with an increase of 1.0%, with the decrease in oil and gasoline offsetting a number of smaller rises, decreasing by 3.0% and 2.8% respectively.
  • Retail sales posted the smallest gain in six months of 0.1% against the 0.2% expected. Leading the rise was internet based purchases while sales of electronics and appliances fell.

Europe & the UK

  • The Bank of England (BoE) maintained its official bank rate at 0.25% in line with market expectation. The lack of change came as inflation was still under the 2% target. The BoE expects inflation to peak at approximately 2.75% in early 2018.
  • Unemployment improved in the UK to 4.7%, with the employment rate of people aged between 16 and 64 at 74.6% the best comparable rate since 1971. The result was a larger than expected drop in people claiming unemployment benefits.

China

  • Industrial production, a broad measure of factory output, rose 6.3% in January from a year earlier. Factory output was 6% on an annual basis the month before.

Comment

In what was unsurprising news last week, the US Federal Reserve raised rates, assessing that the US economy to be showing moderate growth with jobs gains, expectations of increasing inflation (although this has not come to fruition just yet) and GDP growth expected to improve.

What was slightly surprising to the market though, was the accompanying statement which showed caution in the speed of the next set of rate rises. The market had expected rate rises in quick succession to combat the potential for rising inflation through Trump’s pro-growth strategies, but the Federal Reserve eluded to a more gradual and measured forecast of rate rises. The Australian dollar jumped up in response, remaining a comparatively attractive place to hold funds until the US raises their rates above our cash rate (currently 1.5%). 

The Week Ahead

  • US: Unemployment claims, Core durable goods orders 
  • Australia: Monetary Policy Minutes, House Price Index 
  • Europe: Manufacturing PMIs (multiple countries), Consumer Confidence
  • UK: CPI, Retail Sales

Company News

Slater & Gordon updated the market over solvency concerns regarding new senior lenders after Westpac and National Australia Bank auctioned their distressed loans. The company has been informed that these new senior lenders intend to implement a solvent restructure of the company.

Australia and New Zealand Banking Group (ANZ) has confirmed that it is scaling back its exposure to commodities markets after stopping trading activity in base metals, coal and iron ore and electricity. ANZ has maintained its focus on precious metals, agriculture and energy.

Brazilian prosecutors have suspended their case against local miners Vale and BHP. The prosecutors are seeking approximately $US50 billion in damages following the 2015 Samarco mine disaster. The suspension was aimed at unifying lawsuits to help stakeholders reach a settlement.

What could have been the biggest IPO of the year, Alinta, the energy retailer who mostly takes care of WA, was taken out of contention at the last minute through a bid from Chow Tai Fook. The Hong Kong based company offered $4 billion for Alinta, more than the IPO was valued at.  The bid is subject to FIRB Approval.

Markets in Review

 

Capital Return

   
 

Weekly

CYTD

FYTD

S&P ASX 200

0.4%

2.4%

10.8%

DOW JONES

0.1%

5.8%

16.6%

S&P 500

0.2%

6.2%

13.3%

UK FTSE100

1.1%

3.9%

14.2%

FRENCH CAC40

0.7%

3.4%

18.7%

GERMAN DAX

1.1%

5.3%

24.9%

JAPANESE NIKKEI

-0.4%

2.1%

25.3%

SHANGHAI COMPOSITE INDEX

0.8%

4.3%

10.5%

ASX200 Sector Performance for the Week  

ASX200 Biggest Movers for the week 

$1 Australian buys you:

Security

LastPrice

AUDUSD

0.7685

AUDGBP

0.6221

AUDCNY

5.3038

AUDJPY

87.1775

AUDEUR

0.7137

AUDNZD

1.0989

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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