Pitcher Partners' wrap up of issues impacting the markets over the last week.
News in Review
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.
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.
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.
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.
Europe: Euro-Zone Consumer Price Index Estimate (YoY) (FEB)
UK: BOE Governor Mark Carney Speaks in UK Parliament
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
S&P ASX 200
SHANGHAI COMPOSITE INDEX
ASX200 Sector Performance for the Week
ASX200 Biggest Movers for the week
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