Investment Week In Review - 26 September 2016

By Marcus Damen - September 26, 2016

In their meeting last week, while the US Federal Reserve (the Fed) lowered borrowing costs, they didn’t change the overnight cash rate

News in Review

  • The US Federal Reserve maintained the Federal Funds Rate at less than 0.50%.
  • In its Monetary Policy Statement, the Bank of Japan (BoJ) kept the deposit rate at -0.1%, refraining from another interest rate cut and instead pledging to bolster the long-end of the bond market’s yield curve. 
  • The Bank of International Settlements (BIS) said that China’s credit-to-GDP gap now stands at 30.1%, the highest for any country since data was collected in 1995.
  • The measure describes how fast credit has been growing in a country and is an early warning signal for financial crises.
    S&P provided a warning in relation to China, saying that “Credit risks in the Chinese economy may continue to worsen, as indicated by still-significant credit growth amid China’s economic slowdown and rapidly rising credit losses.” 
  • The Conference Board Leading Economic Index for China (aggregating six economic indicators that measure economic activity) increased 0.9% in August, the highest reading for 2016. 
  • Home values across Australia’s eight capital cities rose by 4.1% for the year to June, following strong recent growth in Sydney and Melbourne. 
  • The Markit Flash German Manufacturing Purchasing Managers Index (PMI) fell from August’s 53.3 to 52.7, signalling output growth at German private sector firms expanded at a slower pace at the end of the third quarter. Flash Manufacturing PMI data for France indicated that private sector output rose at the strongest rate in 15 months during September, registering 53.3, up from 51.9 in the preceding survey period.
  • New U.S. home construction fell more than projected in August softness in the South offset gains in the rest of the country. Residential starts declined 5.8% to a 1.14 million annualized rate, from the prior month’s revised 1.21 million pace.

Comment

In their meeting last week, while the US Federal Reserve (the Fed) lowered borrowing costs, they didn’t change the overnight cash rate (which they continue to say they would like to lift at some stage). The Fed materially lowered their guidance for future interest rate rises (from three hikes in 2017 down to two) and in doing so they pushed longer term bond yields down. Long term bond yields fell following the announcement and it is these rates that determine borrowing costs for governments and mortgagees (most mortgages in the US are tied to the 30 year bond yield).

It’s interesting to note that in December 2015 the Federal Reserve flagged four rate hikes for 2016 and are yet to execute one. These hikes have been pushed much further down the road, with now only two flagged for 2017. The result being that long term bond yields remain well below where they were last year when the Fed carried out their first rate rise last December (see table below) and hence the US has not yet experienced rising borrowing costs.

The Week Ahead

  • Australia: Private Sector Credit data is due for September; New Home Sales data is due for August.
  • US: New Home Sales data for August will be released; Confidence Board survey results of US consumer confidence is due; Final GDP data for the June quarter is due. 
  • Europe: European Central bank President Draghi is due to testify before the Committee on Economic and Monetary Affairs of European Parliament in Brussels.
  • China: Caixin Manufacturing Purchasing Managers Index data is due for September. 
  • Japan: Inflation data for September is due.

Company News

  • The long running battle between the ANZ Bank and Indian billionaires Pankaj and Radhika Oswal has been settled with the bank. "The net pre-tax impact of the settlement will be reflected in an additional provision charge of approximately $145m to be taken at the Full Year 2016 results."
  • Despite modest top-line growth (although better than the industry), Nufarm Limited posted solid earnings growth in FY16 which was materially (10% beat) ahead of consensus estimates reflecting the benefits of the company's performance improvement program. The Australian result disappointed, although most other regions reported strong results.
  • Lanxess AG (the world's largest synthetic rubber maker) said on Sunday it would buy specialty chemical company Chemtura Corp for about $2.12 billion in cash to improve the German company's lubricants and flame retardants business.

Markets in Review

 

Capital Return

 

Weekly

FYTD

CYTD

S&P ASX 200

2.5%

3.8%

2.6%

DOW JONES

0.8%

1.8%

4.8%

S&P 500

1.2%

3.1%

5.9%

UK FTSE100

3.0%

6.2%

10.7%

FRENCH CAC40

3.6%

5.9%

-3.2%

GERMAN DAX

3.4%

9.8%

-1.1%

JAPANESE NIKKEI

1.4%

7.6%

-12.0%

SHANGHAI COMPOSITE INDEX

1.0%

3.6%

-14.3%

ASX200 Sector Performance for the Week

ASX200 Biggest Movers for the Week

 

$1 Australian buys you:

   $0.7643
£0.5863
¥5.0980
¥77.0845
€0.6821
$1.0499

 

 

 

 

 

 

 

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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