Investment Week in Review - 3 July 2017

By Marcus Damen - July 3, 2017

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

News in Review

Australia

  • Job vacancies rose 1.7% in the three months to May. The number of positions employers were seeking to fill rose to 189,200 in the May quarter, the majority of these in the private sector, according to the Australian Bureau of Statistics (ABS).  Private sector job vacancies rose 1.5% to 170,500 and public sector vacancies rose 3.2% to 18,700.
  • In further data released by the ABS, Australians have never been wealthier, with total household wealth increasing to a record $9.6 trillion at the end of March. This is up 2.4% over the past quarter. $826 billion of the wealth is made up of shares, while the value of land and dwellings rose by $131 billion in the March quarter.  Households also held a touch over $1 trillion in cash and deposits at the end of March. Based on population alone, this averages out to each Australian being worth $393,000, up $7,500 over the past quarter.

US

  • The International Monetary Fund cut its growth forecasts for the US economic to 2.1 per cent for both 2017 and 2018, dropping its assumption that President Donald Trump’s tax cut and fiscal spending plans would boost growth. After its review of US economic policy, the IMF noted that the Trump administration was unlikely to achieve its goal of 3% annual GDP growth.
  • In her first public remarks since the US central bank increased rates on June 14 to 1.25%, chair of the US Federal Reserve Janet Yellen said that US banks are “very much stronger” and that she doesn’t believe another financial crisis like the GFC is likely “in our lifetime” due to the measures taken by the Federal Reserve since that crisis.

Europe

  • In Europe, the European Central Bank (ECB) president Mario Draghi hinted at a gradual relaxing of European Central Bank stimulus. At the ECB’s annual conference in Portugal, Draghi explained that weak oil prices from a supply perspective and benign wage growth were two factors that explained why stronger growth isn’t translating to faster inflation. He repeated his stance that inflationary pressures need to build before the ECB considers tightening monetary policy.

China

  • The Chinese economy grew in June, with broad measures of manufacturing and services activity pointing to steady gains. The official Manufacturing Purchasing Managers Index (PMI), which focuses on large and state-run companies, increased half a point to 51.7 from 51.2. A number above 50 indicates expansion.

Comment

Each financial crisis is quite different to the last one and many are often caused by the actions taken to deal with previous crises.   For this reason, Janet Yellen is probably quite right that we won’t see another financial crisis just like the GFC in our lifetime, however it is quite possible that the measures taken to deal with that crisis contribute to another that is very different.    

While (as Yellen points out) the US banks are now much better capitalised than they were pre-GFC, major governments are now carrying much higher debt levels and central banks have carried out unprecedented experiments and the potential for unintended consequences of trying to unwind these positions is significant.  

Just last year, Janet Yellen conceded that in 2007/08 (when she was a part of the Committee chaired by Ben Bernanke) the Federal Reserve “didn’t see the financial crisis coming” and for this reason we must take her recent comments with a grain of salt and remain vigilant in assessing systematic risks.   

The Week Ahead

  • US: Unemployment rate, FOMC meeting minutes
  • Australia: RBA statement and Cash Rate announcement (Jul)
  • Europe: ECB Monetary Policy Meeting Account, Eurozone unemployment rate (May)
  • UK: Final GDP estimate (Mar Qtr) 
  • China: Caixin Manufacturing PMI (Jul)

Company News

  • Slater and Gordon is set to come under control of international hedge funds after its lenders agreed to a debt-for-equity swap that will result in 95% of the company’s equity being owned by secured creditors with shareholders making up the other 5%. As part of this plan, managing director Andrew Grech has stepped down effective immediately, with the entire board to follow. Slater and Gordon’s market value has fallen from $2.8 billion in April 2015 to just $32 million, mainly driven by its $1.2 billion acquisition of professional services firm Quindell in the UK.
  • Blackmores CEO Christine Holgate will be departing the natural healthcare and vitamin producing company at the end of September after nine years in charge. The company is likely to promote someone internally with the two strongest candidates being David Fenlon, Blackmores Australiasian managing director, and Peter Osborne, Blackmores managing director for Asia. The share price has been extremely volatile over the past two years increasing from $20 in early 2014 to $220 in January 2016 on the back of Chinese demand. It is now trading at around the $95 mark. She will become the new CEO at Australia Post.
  • Prime Media Group, which is essentially made up of Seven’s regional networks and secondary digital channels such as ‘7mate’, has lifted its profit guidance for the current financial year after the federal government delivered a licence fee cut for the industry. This involves the abolishment of broadcast license fees. Prime now expects core net profit for the year to 30 June 2017 to be between $33.5 million and $35 million, up from its earlier forecast of $29.5 million to $31 million. Its share price has jumped over 15% this week.

Markets in Review

 

Capital Return

   
 

Weekly

CYTD

FYTD

S&P ASX 200

0.1%

1.0%

9.3%

DOW JONES

-0.2%

8.0%

19.1%

S&P 500

-0.6%

8.2%

15.5%

UK FTSE100

-1.5%

2.4%

12.4%

FRENCH CAC40

-2.8%

5.3%

20.8%

GERMAN DAX

-3.2%

7.4%

27.3%

JAPANESE NIKKEI

-0.5%

4.8%

28.6%

SHANGHAI COMPOSITE INDEX

1.1%

2.9%

9.0%

ASX200 Biggest Movers for the Week

$1 Australian buys you:

Security

LastPrice

AUDUSD

0.7688

AUDGBP

0.5912

AUDCNY

5.2060

AUDJPY

86.1740

AUDEUR

0.6728

AUDNZD

1.0499

ASX200 Sector Performance for the Week


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