Investment Week in Review - 27 March 2017

By George van Deventer - March 27, 2017

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

News in Review

Australia

  • The ABS House Price Index rose a higher than expected 4.1% in Q4 of 2016, lifting annual house price inflation to 7.7% YoY. Sydney prices surged 10.3% YoY, while Melbourne jumped 10.8% YoY. Given renewed buoyancy in the housing market it was not surprising to see more discussion of housing market risks (and associated risks related to heightened household debt) in the latest RBA’s Board minutes. The minutes indicated that the Reserve Bank has concerns about how highly indebted households would deal with a shock from a combination of rising unemployment and falling consumption.

US

  • President Trump was forced to admit defeat as the Republican healthcare reform bill was pulled from consideration in the House due to dwindling support among Republicans. The move was a blow to years of rhetoric from Republicans who campaigned on a pledge to replace former President Barack Obama's signature healthcare law and it handed Trump the first legislative defeat of his presidency.
  • The number of Americans who filed for unemployment insurance for the first time unexpectedly increased 15,000 to a seasonally adjusted 258,000 last week, but remained below a level associated with a strengthening labour market. Claims have now been below 300,000, a threshold associated with a healthy labour market for 80 straight weeks, which is the longest stretch since 1970.
  • The Chicago Fed’s National Activity Index, a composite of 85 indicators of economic activity, rose to 0.34 in February and brought the three month average up to 0.24, which is the highest level since December 2014 and suggestive of a better than trend rate of GDP growth.

Europe & the UK

  • The UK’s Consumer Price Index (CPI) rose 0.7% in February, slightly above market expectations, lifting annual inflation to 2.3%. This is the highest rate of CPI inflation seen since September 2013. Rising transport costs, particularly for fuel, were the main contributors to the increase, while food prices also increased by 0.3% after 31 months of consecutive falls.
  • The European Commission’s flash Consumer Confidence index rose 1.2pts to -5.0 in March, leaving it at an above average level and thus still pointing to a possible uplift in growth and, in particular, consumer spending.

Comment

Last week US equity markets dragged on global indices as investors questioned the ability of the Trump administration to implement the pro-business policies for which it campaigned so strongly. This followed the withdrawal of the draft healthcare reform bill which was to scrap Obama’s Affordable Care Act.

While President Trump says he will now turn to tax reform, it was widely expected that healthcare reform was necessary in order to provide the necessary savings to support tax reform. The question investors now face is to what extent Trump can implement big policy changes when he failed his first key political test so early in his term as president, when he should be at the height of his power with party cohesion at its strongest. 

The Week Ahead

  • US: Consumer Confidence (MAR), Fed Chair Janet Yellen Speaks, Gross Domestic Product (Annualised) (4Q)
  • Australia: Private Sector Credit (YoY) (FEB)
  • Europe: German Consumer Price Index (YoY) (MAR), Euro-Zone Consumer Price Index Estimate (YoY) (MAR)
  • UK: Gross Domestic Product (YoY) (4Q)
  • China: Manufacturing Purchasing Manufacturers Index (MAR)

Company News

CBA became the last of the big four lenders to raise interest on investment loans by 26 basis points to 5.94% for interest-only investment loans; and standard variable rates for interest-only owner-occupier home loans by 25 basis points to 5.47%.

Analysts urged Wesfarmers to sell off Kmart while the store is at “peak valuation” to avoid the store suffering at the expense of a Target revamp.

ASIC dropped its investigation into law firm Slater and Gordon after finding no evidence it had manipulated its accounts prior to its disastrous foray into the UK.

Markets in Review

 

Capital Return

   
 

Weekly

CYTD

FYTD

S&P ASX 200

-0.8%

1.5%

9.9%

DOW JONES

-1.5%

4.2%

14.9%

S&P 500

-1.4%

4.7%

11.7%

UK FTSE100

-1.2%

2.7%

12.8%

FRENCH CAC40

-0.2%

3.3%

18.5%

GERMAN DAX

-0.3%

5.1%

24.6%

JAPANESE NIKKEI

-1.3%

0.8%

23.7%

SHANGHAI COMPOSITE INDEX

1.0%

5.3%

11.6%

ASX200 Sector Performance for the Week  

ASX200 Biggest Movers for the week 

$1 Australian buys you:

Security

LastPrice

AUDUSD

0.7634

AUDGBP

0.6109

AUDCNY

5.2523

AUDJPY

84.7120

AUDEUR

0.7046

AUDNZD

1.0852

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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