Investment Week in Review - 27 February 2017

By Marcus Damen - February 28, 2017

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

News in Review

Australia

  • Total capital expenditure (capex) fell 2.1% over the December quarter of 2016, although a key element that feeds into next week's GDP data (machinery and equipment investment) rose 0.4% over the quarter. Companies said they expect to invest more than they previously estimated in the 2017 financial year, with businesses estimating they would spend $112 billion, compared to the previous forecast of $107 billion thanks to an upgrade by the services industry.
  • Minutes from its most recent meeting revealed that The RBA is confident the Australian economy will avoid a recession in the December 2016 quarter, helped by a significant recovery in exports since the unexpected growth contraction in the September 2016 quarter.

US

  • Minutes from the most recent Federal Reserve meeting revealed that Fed officials remain confident they can raise interest rates gradually, while a hike “fairly soon” might be appropriate to avoid the risk of an overheated economy.  Following the release of the minutes, traders are pricing in about a one-in-three chance of a rate increase when the FOMC next meets on March 14.
  • The number of Americans filing for unemployment benefits rose slightly more than expected but the four-week average of claims fell to its lowest level since 1973. 

Europe & the UK

  • The CBI’s Distributive Trades Survey pointed to some improvement in retailers’ sales in February following a weak January. However, weakness in expected supplier orders suggests that retailers are in tune with BoE Governor Mark Carney’s concerns about how the consumer with spend this year
  • Despite considerable political uncertainty, the pace of economic growth in the eurozone improved markedly to hit a near six-year high in February, pointing to strong upward growth momentum in the early months of 2017.  By country, growth rates accelerated robustly in both France and Germany, where composite PMIs of 56.2 and 56.1 were recorded respectively.

China

  • Beijing officials confirmed that the country’s foreign-exchange reserves fell by US$12.3 billion to US$2.998 trillion, which compares with the all-time high of US$3.993 trillion in June 2014.

Comment

While the US Federal Reserve has a clear intention to continue to raise rates as soon as practical, what is less clear is the Reserve Bank of Australia's intention and capacity.  The interesting issue to watch will be the impact of rising global bond yields (representing longer term views on inflation and interest rates) on the funding costs of Australian banks and how they handle these costs.  Already it appears that the recent rise in bond yield is contributing to increasing funding costs which the banks are trying to pass on via increases to mortgage rates (to date targeted primarily at investment loans).

With a high level of household debt in Australia and the banks raising interest rates independently of the central bank it is conceivable that the RBA may need to be cut simply to alleviate pressure on household budgets.  Whether inflation will remain sufficiently benign in order to allow the RBA to cut is another question.  

The Week Ahead

  • US: Durable Goods Orders (JAN P), Consumer Confidence (FEB)
  • Australia: Gross Domestic Product (YoY) (4Q)
  • China: Manufacturing PMI (FEB)
  • Europe: Euro-Zone Consumer Price Index Estimate (YoY) (FEB)
  • UK: BOE Governor Mark Carney Speaks in UK Parliament

Company News

 

Global logistics company Brambles slashed its full-year earnings guidance after first half net profit halved on slowing North America pallet sales and a large impairment of oil and gas assets. The pallet and container provider reported a net profit of US$146.2 million for the six months through December, down from US$290.9 million a year earlier.

WorleyParsons reported a net loss of $2.4 million for the six months through December as the engineering and services contractor logged more restructuring costs and continued to face frail demand from resources producers.

Qantas announced a 25% fall in its half-year profit blaming a surge in capacity from its international competitors on Australian routes off the back of lower oil prices.  

Markets in Review

 

Capital Return

   
 

Weekly

CYTD

FYTD

S&P ASX 200

-1.2%

1.3%

9.7%

DOW JONES

1.0%

5.4%

16.1%

S&P 500

0.7%

5.7%

12.8%

UK FTSE100

-0.8%

1.4%

11.4%

FRENCH CAC40

-0.5%

-0.4%

14.3%

GERMAN DAX

0.4%

2.8%

21.9%

JAPANESE NIKKEI

0.3%

0.9%

23.8%

SHANGHAI COMPOSITE INDEX

1.6%

4.8%

11.1%

ASX200 Sector Performance for the Week  

ASX200 Biggest Movers for the week 

$1 Australian buys you:

Security

LastPrice

AUDUSD

0.7710

AUDGBP

0.6146

AUDCNY

5.2971

AUDJPY

87.0405

AUDEUR

0.7290

AUDNZD

1.0681

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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