Investment Week In Review - 24 October 2016

By Marcus Damen - October 24, 2016

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

News in Review

  • Australia's unemployment rate edged down to 5.6% (from 5.7%) despite the loss of 9,800 jobs, as the participation rate fell from 64.7% to 64.5%. Within these figures, it was estimated that 53,000 full time jobs were lost while 43,200 part time jobs were gained.
  • The Chinese economy continued its expansion at 6.7% pa in the third quarter, in line with Beijing’s full-year target of between 6.5% and 7%. Behind this was a surge in the money supply (the M1 measure rose 24.7% for the year) driven by real estate sales and mortgages.   
  • The US deficit increased for the first time since 2011 due to a slowdown in the growth of federal revenues as well as rising government spending. The budget shortfall widened to $587 billion in the fiscal year that ended Sept. 30, up 34% from the previous fiscal year.
  • The cost of living in the U.S. rose at the fastest pace in five months on shelter and energy prices, pushing inflation closer to the Federal Reserve’s goal. The Consumer Price Index (CPI) increased 0.3% in September from the previous month, matching the median forecast of economists, after a 0.2% gain in August.
  • Chinese industrial production weakened unexpectedly in September, while broad measures of consumer spending and fixed-asset investment improved. Industrial production, a broad measure of factory output, rose at an annualised 6.1% in September from a year earlier.
  • Euro area annual inflation was 0.4% in September 2016, up from 0.2% in August. In September 2015 the rate was -0.1%. European Union annual inflation was also 0.4% in September 2016, up from 0.3% in August.
  • Output at US manufacturers rose for the third time in four months on production of consumer goods and construction materials, a sign the industry is recovering from a prolonged spell of weakness. The 0.2% gain at factories, which make up 75% of production, followed a 0.5% decrease the prior month.
  • Sterling rose on Tuesday, spurred on by higher than expected UK inflation data that cast doubt on whether the Bank of England will still consider easing monetary policy again this year. The CPI rose by 1.0% in the year to September 2016, compared with a 0.6% rise in the year to August. The rate in September 2016 was the highest since November 2014.
  • UK jobless rate held steady at 4.9% for the third straight time in the three months to August of 2016, in line with market expectations. It stood at the lowest level since July to September 2005, as the number of people in work and the number of unemployed.

Comment

This week’s data highlighted that China and the US are requiring increasing levels of debt to drive economic growth, a trend that increases risks within the global economy and financial markets and hence provides reason for caution. 

The RBA are beginning to voice a level of concern on this matter, particularly in relation to China, stating in their recently published half yearly financial stability review that the “potential for a disruptive adjustment in China remains pronounced, given the ongoing increase in debt at a time when the pace of economic growth has been moderating”.  This echoed similar recent warnings from the International Monetary Fund and the Bank of International Settlements on the matter.    

The RBA will also be concerned about the loss of jobs (particularly the full time jobs) reported last week and the falling participation rate which both point to softness in the domestic economy despite the lower headline unemployment rate.  

The Week Ahead

  • Australia: Inflation data
  • US: Advance GDP; Conference Board consumer confidence survey results
  • Europe: Flash Manufacturing Purchasing Managers Index
  • UK: GDP
  • Japan: Inflation and Household Spending

Company News

  • In its market update Healthscope stated that it has experienced "slower than expected" hospital revenue growth in the September quarter, highlighting recent publicity of healthcare affordability. The company stated that if Q1 trends persist throughout all of FY17, it is likely that the earnings of its Hospitals division will be flat year-on-year. Healthscope noted that falling confidence in private health insurance products and increasing numbers of people buying ‘junk’ policies to avoid penalty tax is also having an impact. In addition, it finds itself competing with public hospitals which currently undertake 770,000 private patient episodes a year.
  • Two of Australia's biggest listed gambling businesses, Tabcorp and Tatts, have agreed to merge and create an $11.3 billion giant which will control more than 90% of Australia's totalisator betting and generate revenues in excess of $5 billion. The merger expected to be complete mid-2017.
  • Crown has wiped $500m from the value of major shareholder James Packer's stake in the casino operator, as analysts warned the company could face a profit hit of up to 5% if there is a wider crackdown on China's VIP gaming markets. Crown said in a statement to the ASX that it believes the executive vice-president of its VIP international business, Jason O'Connor, has been detained by Chinese authorities in a crackdown that has seen 18 Crown staff detained.
  • BHP reported a slide in quarterly iron ore production, but saw early signs of a recovery. The company said that its quarterly iron ore production was 58 million tons for the September 2016 quarter, compared with the 61 million tons produced in the year-earlier period. Fiscal 2017 guidance remained between 265 million and 275 million tons.

Markets in Review

 

Capital Return

 

Weekly

FYTD

CYTD

S&P ASX 200

-0.1%

3.8%

2.5%

DOW JONES

-0.0%

1.2%

4.1%

S&P 500

0.4%

2.0%

4.8%

UK FTSE100

0.1%

7.9%

12.5%

FRENCH CAC40

1.5%

7.0%

-2.2%

GERMAN DAX

1.2%

10.6%

-0.3%

JAPANESE NIKKEI

1.9%

10.3%

-9.7%

SHANGHAI COMPOSITE INDEX

0.9%

5.5%

-12.7%

 

ASX200 Sector Performance for the Week

ASX200 Biggest Movers for the Week

$1 Australian buys you:

   $0.7638
£0.6242
¥5.1608
¥79.3590
€0.7007
$1.0645

 

 

 

 

 

 

 
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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