Investment Week in Review - 3 April 2017

By Marcus Damen - April 3, 2017

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

News in Review

US

  • Consumer confidence rose in March and the index now stands at 125.6, up from 116.1 in February. This is the highest level since December 2000.
  • The US economy grew in the quarter to December at a faster pace than previously expected with a final result of 2.1% in annualised growth. The higher growth has been led by increased consumer spending and an increase in corporate profits on the previous year’s result.

Australia

  • The Housing Industry Association’s (HIA) monthly report showed a slight increase of 0.2% in new houses in February. The previous month was a drop of 2.2% and the underlying trend appears to show a gradual downward cycle.
  • The RBA reported a slight increase in Private Sector Credit growth in February of 0.3%. The rise was below expectations but higher than January’s result of 0.2%. Housing credit lead the increase with a 0.6% growth while both Personal and Business credit declined by 0.1% over the period.

Europe & the UK

  • Europe’s largest economy (Germany) has delivered its Business Climate Index which shows that business morale is at its highest point in nearly 6 years after the index rose to 112.3. The index is a survey of 7,000 businesses which asks respondents view of current and expected business conditions.
  • The UK’s current account deficit reduced to £12.1 Billion for the three months to December, down on the prior quarter’s deficit of £25.5 Billion. The rise came prominently after a rise in exported goods.

China

  • China released results of both manufacturing and non-manufacturing Purchasing Managers Index (PMI) which was 51.8 and 55.1 respectively. Both of these results are an increase from the prior months report. The PMI is a survey of purchasing managers which asks them to rate the current relative business conditions. A score above 50.0 indicates expansion, while below indicates contraction.

Comment

While a high consumer confidence level in the US sounds like a positive indicator for the US economy, historically it has often been quite a contrarian one.  That is, high consumer confidence has often been followed by weak economic conditions and weak share market returns.  This has particularly been the case where confidence has been driven by a number of years of rising asset prices and rising household debt levels which then come under pressure from rising borrowing costs. 

US consumer confidence levels have just bypassed the peak reached in 2007 and are closing in on the peaks reached in 2000, both of which were periods followed by a couple of years of falling confidence and equity markets.  While confidence could hold up for some time yet, particularly if central banks are very careful/slow in raising rates, it is prudent to remain cautious in relation to the current high confidence levels. 

The Week Ahead

  • US: Non-Farm Employment Change, Manufacturing PMI, Unemployment Rate
  • Australia: Retail Sales m/m, Trade balance, Cash Rate
  • Europe: German Factory Orders m/m
  • UK: Manufacturing PMI, Construction PMI
  • China: Caixin Manufacturing PMI

Company News

  • The new lenders of Slater and Gordon have given a green light to buyback a small parcel of employee-owned shares. The buyback comes as the company revealed that it had received assurances and financial assistance form its new hedge fund lenders that will pave the way for a restructure of the group through a debt for equity swap.
  • The ACCC has denied an application by the big 4 banks and Bendigo and Adelaide Bank to bargain as a group against Apple and collectively boycott its payment system, Apple Pay. Comments from the ACCC have revealed that they are not satisfied that the likely benefits of the proposed conduct would outweigh the likely detriments.
  • Sydney Airport boss Kerrie Mather is leaving after 15 years of service with Australia’s biggest airport as a decision on whether it will develop Sydney’s long-awaited Badgerys Creek airport is yet to be done. Sydney Airport will have until May 8 from the government to execute its right of first refusal on whether it will still develop and operate Sydney’s second airport. In February, Sydney Airport booked a 13.4 percent jump in annual net profit to $320.9 million due to strong passenger growth.

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