Investment Week In Review - 21 November 2016

By Michelle Heffernan - November 21, 2016

Pitcher Partners Investment Services' wrap up of news and current affairs impacting the markets.

News in Review

  • Employment in Australia decreased in October 2016 by 1,000 to 11,946,600 persons. This slight fall in employment reflected an increase in part-time employment of 8,400 persons being more than offset by a decrease in full-time employment of 9,500 persons. The unemployment rate remained steady at 5.6% while the participation rate decreased by 0.1% to 64.5%. The participation has decreased by 0.6% over the past year.
  • The US Consumer Price Index (CPI) increased 0.4% in October. Over the last 12 months, the index rose 1.6% before seasonal adjustment.
  • Sales at US retailers rose more than forecast during October after an even stronger September than initially estimated, showing consumers continue to pump up the economy. A 0.8% rise in October followed an upwardly revised 1% jump in the prior month, marking the biggest back-to-back increase since 2014.
  • US housing numbers came in extremely strong at 1.32 million starts, an increase of 25%, the first commentary around this number was it could be an outlier and subject to some form of correction.
  • Janet Yellen commented there is not that much space for Donald Trump and his stimulus. Such are the dynamics of central bank and government.
  • GDP rose by 0.3% in the Euro Area and by 0.4% in the EU28 during the third quarter of 2016, compared with the previous quarter. In the second quarter of 2016, GDP also grew by 0.3% and 0.4% respectively.
  • The UK CPI rose by 0.9% in the year to October 2016, compared with a 1.0% rise in the year to September. Although the rate was slightly lower than in September 2016, it remained higher than the rates otherwise seen since late 2014.
  • Broad measures of Chinese economic activity expanded less than forecast in October:
    • Industrial production, an indicator of factory output, rose at an annualised 6.1% in October from a year earlier. Industrial production rose by a similar amount the previous month.
    • Retail sales, which track private and government spending, rose 10% year-on-year, down from September’s 10.7% gain.
    • A separate gauge of annual fixed-asset investment, a proxy for long-term spending, increased 8.3% in the January-October period. Urban investment rose 8.2% in the year to September.

Comment

Given its excellent electrical conductivity, copper is widely used as an industrial metal in applications such as electrical wiring, roofing, plumbing and motors. For this reason some market participants view the metal price as an indicator of economic health, ie higher demand for the metal implies increased economic activity, or at least expectations for such an increase.

The copper price has experienced the biggest short-term surge in 7 years, commencing before the election of Donald Trump and reaching an 18 month high last week. However, according to a FocusEconomics survey of 22 investment banks, not a single analyst sees copper averaging the final quarter of 2016 above the current spot price.

The question remains whether optimism in equity and copper markets will be validated by economic strength in the medium term. 

The Week Ahead

  • Australia: Construction Work Done
  • US: New and Existing Home Sales; FOMC Minutes 
  • Europe: Consumer Confidence; Flash Manufacturing Purchasing Managers Index 
  • Japan: Trade Balance; Inflation 

Company News

  • Big W chief executive Sally Macdonald has tendered her resignation just 10 months after being appointed to the top job at the Woolworths-owned discount department store chain. It comes after her predecessor Alistair McGeorge stepped down for “health reasons” in August last year after just 14 months in the position, with a staff complaint about his behaviour tarnishing his exit. Ms Macdonald, the former chief executive of fashion group Oroton, claimed the lead Big W role in January and quickly made her mark on the company, with a major shake-up of sourcing that led to significant job cuts among its buyers.
  • Telstra has reiterated its FY17 guidance of "mid to high-single digit revenue growth; mid-single digit EBITDA growth; capex to sales of ~18%; and free cashflow of A$3.5-4.0bn". They noted while competition is still heavy they have seen strong growth in mobile and fixed subscribers.
  • Oz Minerals Ltd said it will dig up more ore than expected from an underground mine at its Prominent Hill copper-gold operation in South Australia state each year, with mining now due to continue there through 2028.
  • Senior Rio Tinto executive Alan Davies has declared war on the company over his sacking from his $3.5 million-a-year job, in the latest instalment of the mining giant’s festering Simandou iron ore corruption scandal in Guinea. The dumped London-based chief executive of its energy and minerals unit, a Rio man for close to 20 years and a former Brisbane accountant and lawyer, is seething that the company has made “no effort to abide by due process" in sacking him after suspending him from duties last week.
  • Donald Trump’s plan to make American infrastructure great again is benefiting at least one Mexican company. Grupo Mexico SAB (market cap of US$18b) was the only company that rose in Mexico’s IPC stock index since the Nov. 8 U.S. election through Wednesday, as Trump’s US$550 billion infrastructure pledge helps fuel the biggest surge in copper prices in seven years.

Markets in Review

 

Capital Return

   
 

Weekly

FYTD

CYTD

S&P ASX 200

-0.2%

2.4%

1.2%

DOW JONES

0.1%

5.2%

8.3%

S&P 500

0.8%

4.0%

6.7%

UK FTSE100

0.7%

4.2%

8.5%

FRENCH CAC40

0.3%

6.3%

-2.9%

GERMAN DAX

0.0%

10.2%

-0.7%

JAPANESE NIKKEI

3.4%

15.4%

-5.6%

SHANGHAI COMPOSITE INDEX

-0.1%

9.0%

-9.8%

ASX200 Sector Performance for the Week

ASX200 Biggest Movers for the Week

$1 Australian buys you:

   $0.7395
£0.5965
¥5.0954
¥81.8460
€0.6975
$1.0544

 

 

 

 

 

 

 
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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