Investment Week In Review - 4 July 2016

By Marcus Damen - July 4, 2016

The major challenges confronting governments gives rise to the need for great change, however there is great disagreement about the nature of the changes required and the appropriate timing of them.

News In Review

  • The Federal Election went down to the wire with a result still unknown and significant ground lost by the Coalition government to Labor, the Greens and the Nick Xenophon Team.   

  • The Prime Ministers of Sweden and Denmark called for the UK to move quickly towards EU exit to reduce the period of uncertainty. Belgium’s Prime Minister said “The EU can’t afford being held hostage by the U.K. political crisis for months”. Former Prime Minister David Cameron rejected calls for a second referendum and told the UK parliament that “Britain is ready to confront what the future holds for us from a position of strength”.

  • The European Commission’s pre-Brexit economic sentiment indicator for June continued to paint the euro area economy in a reasonably positive light, with the headline sentiment index edging down only slightly to a still solid 104.4. This level remains well above its average going back to 1990 of 100.0, indicating relative optimism among businesses and consumers.

  • Futures markets are only pricing in a 6% chance of a rate hike in the US next month and a 22% chance of a rate hike in September. Bloomberg Markets noted that traders are assigning a 50% chance of no policy action until the beginning of 2018. 

  • China's Westpac-MNI consumer confidence index rose 1.7pts to 115.9 in June, which is higher than the average seen over the past couple of years.

  • The Chinese government’s manufacturing Purchasing Managers' Index (PMI), a survey that tracks the health of state-owned companies came in at 50.0 last month, versus 50.1 logged in May. The competing Caixin China manufacturing purchasing managers' index, a private gauge of nationwide factory activity, fell to 48.6 in June from 49.2 in May. The decline marks the 15th straight month that index has remained in contractionary territory. Readings above 50 indicates expansion while ones below indicate contraction.  

  • The Conference Board’s consumer survey for June revealed the highest level of consumer confidence in the US in 2016, suggesting the recent acceleration in consumer spending growth is set to continue in the near term. The survey, however, was conducted before the Brexit decision, which could unexpectedly weigh on the US economy in the coming months.

Comment

While the election outcome was a surprise for many, it was consistent with the pre-election polls and also seems consistent with an increasingly uncertain and unstable global political environment. As economic, social and environmental challenges increase so too do the pressures and expectations on governments and this may be contributing to this trend.  

The major challenges confronting governments gives rise to the need for great change, however there is great disagreement about the nature of the changes required and the appropriate timing of them.  It seems that a number of voters that would have just gone with the flow in the good times are now either getting agitating that change is not happening, or because it’s not happening fast enough or because it’s happening too fast.  

When the economy is very strong there is less imperative to make unpopular choices and when people are confident it is much harder to run scare campaigns. However the opposite is true when economies weaken, income equality worsens and people get nervous and/or frustrated, hence the situation that has been evident in Europe and is becoming increasingly evident in the US and Australia.

Should Australia be left with either a hung parliament or a significantly weakened government, the likelihood of nation-building fiscal stimulus (either via policy reform or large infrastructure projects) will reduce, placing even greater reliance on monetary policy (ie the RBA) to shoulder the economic burden going forward.  

The Week Ahead

  • US: ISM Non-Manufacturing Composite (JUN), Unemployment Rate (JUN)
  • Australia: Reserve Bank of Australia Rate Decision (JUL 5), AiG Performance of Construction Index (JUN)
  • UK: Carney Publishes BOE Financial Stability Report, Markit/CIPS UK Construction PMI (JUN)
  • Europe: Markit Eurozone Retail PMI (JUN), Euro-Zone Sentix Investor Confidence (JUL)
  • China: Caixin China PMI Services (JUN), Caixin China PMI Services (JUN)

Company News

  • A Brazilian court has overturned a crucial settlement BHP Billiton had struck with the Brazilian government to limit its liability from the Samarco dam disaster which killed 17 people.

  • Telstra CEO Andy Penn announced the Telco would invest $250 million to improve its mobile data network following another network outage during the week which proved to be a major disruption for business activity in Victoria.   

  • One of China’s biggest banks, Postal Savings Bank of China, hopes to raise $8 billion by listing in Hong Kong, in what would be the world's biggest flotation this year. If successful, the initial public offering would be the biggest global IPO since Chinese Internet giant Alibaba’s $25 billion listing in New York in 2014.

  • Banks in Singapore are collaborating with Facebook to enable their customers to perform electronic transfers between account holders who have registered their social media identities with their banks.

Markets in Review

 

Capital Return

   
 

Weekly

FYTD

CYTD

S&P ASX 200

2.6%

0.3%

-0.9%

DOW JONES

3.2%

0.1%

3.0%

S&P 500

3.2%

0.2%

2.9%

UK FTSE100

7.2%

1.1%

5.4%

FRENCH CAC40

4.1%

0.9%

-7.8%

GERMAN DAX

2.3%

1.0%

-9.0%

JAPANESE NIKKEI

4.9%

0.7%

-17.6%

SHANGHAI COMPOSITE INDEX

2.7%

0.1%

-17.1%

$1 Australian buys you:

       
   $0.7466
£0.5608
¥4.9680
¥76.6740
€0.6728
$1.0438

 

 

 

 

 

 

ASX200 Sector Performance for the Week

ASX200 Biggest Movers for the Week

 

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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