Investment Week In Review - 25 July 2016

By Marcus Damen - July 25, 2016

Markets defy economic uncertainty post Brexit, as investors appear more excited by lower interest rate expectations globally.

News In Review

  • Malcolm Turnbull was announced as our Prime Minister, with the Coalition claiming 76 seats and Labor 68 seats in the House of Representatives. He is due to release his cabinet line-up today.

  • Despite his “ironclad” guarantees that new superannuation rules will not change, Malcolm Turnbull conceded that he is prepared to listen very keenly and carefully to concerns that have been raised by my colleagues", perhaps a sign of concern for a potential backbencher rebellion. 

  • The Nab Australian Business Survey revealed business confidence weakened in the second quarter, a sign the economy was losing some of its momentum after a solid start to 2016. The business conditions index however rose one point to +11 in the second quarter of 2016, well above the long-run average and the highest since the global financial crisis.

  • The Australian share market reached an 11 month high and broke through the psychological 5500 point barrier as global risk sentiment continued to improve.

  • The IMF revised down its forecast for global growth to 3.1% and 3.4% for this year and 2017 respectively (from 3.2% and 3.5%). This outlook followed the Brexit vote and is based on the assumption that the EU and UK negotiate a deal that does not lead to a large increase in economic barriers.

  • The RBA minutes from the most recent June meeting reinforced the bank’s easing bias, with a rate cut likely in August if Australia’s economic outlook worsens and underlying inflation remains weak. A rate cut in August is expected by 24 out of 25 economists surveyed by Bloomberg, while markets are pricing in a 64% chance that the cash rate will fall to 1.5%.

  • Britain's Purchasing Managers Index (PMI) fell sharply to 47.7 in July following a reading of 52.4 in June, the sharpest one-month drop on record and the first sign of economic weakness following the Brexit vote. A reading above 50 indicates expansion and a reading below indicates contraction. The Pound also fell a further 0.8% after the data was released.


The fall in Britain's PMI was consistent with the notion that the Brexit vote could weaken activity and tip the nation into recession. In the past, the PMI has been a reasonably reliable leading indicator of recession in the UK, as set out below:


While this reading is an ominous signal, the markets took it in their stride with investors seemingly more excited by the lower interest rates that are expected globally as a result of the heightened economic uncertainty. Interest rate expectations in the major developed economies including the US are materially lower than prior to the Brexit vote.

The Week Ahead

  • US: Consumer Confidence (JUL), Durable Goods Orders (JUN P)
  • Australia: Consumer Prices Index (YoY) (2Q)
  • UK: Gross Domestic Product (YoY) (2Q A)
  • Europe: Euro-Zone Gross Domestic Product (YoY) (2Q A)), German Unemployment Change (JUL)
  • China: Industrial Profits (YoY) (JUN)

Company News

  • Woolworths is conducting a sale process for both Home Timber & Hardware (HTH) and Masters with final bids received last Monday. Industry sources suggest the bidders for HTH were 1) Metcash, 2) Anchorage Capital Partners, 3) A syndicate led by 2 former HTH executives and 4) Blackstone Group who is bidding for both Masters and HTH. 

  • It was announced earlier today that Metcash has received ACCC approval to participate in Woolworths sale process for Home Timber & Hardware with the condition of a court-enforceable undertaking that it doesn't restrict independent hardware stores from acquiring products from non-Metcash sources, nor favour its own hardware stores over nearby independent stores. With the ACCC decision concluded, WOW will now be looking to finalise a deal for HTH in the near term.

  • Oil Search has backed down from a bidding war over New York-listed explorer InterOil, following a counter-bid by global energy giant ExxonMobil. "Given the decision by ExxonMobil to make an offer for InterOil on the terms it has announced, we do not believe it is in the best interests of our shareholders for Oil Search to submit a revised offer," Oil Search chief executive Peter Botten said on Thursday.

  • Asciano: The ACCC has announced it will not oppose the acquisition of Asciano by Qube, Brookfield, and a group of global investment funds, citing that there will not be a substantial lessoning of competition in any market as a result of the takeover. The takeover is expected to proceed with Asciano shares ceasing to trade on the 29th of July. The special dividend will be paid to shareholders on the 11th of August.

  • South32 has beaten production guidance at most of its major assets in the June quarter and confirmed its taste for copper and base metals by farming into prospective acreage in Canada. The Worsley Alumina refinery in WA did better marginally better than the 3 950 000 tonnes that was forecast, while the 7m tonnes of coking coal produced in the Illawarra region was 2% better than guidance.

  • Telstra will undergo its first major brand shakeup in five years as it looks to pivot away from being viewed as a telecommunications business towards a technology company.


Markets in Review


Capital Return





S&P ASX 200








S&P 500
























$1 Australian buys you:








ASX200 Sector Performance for the Week

ASX200 Biggest Movers for the Week


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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