Investors were upbeat after GDP figures showed growth in Australia amongst some of the best growth rates in the developed world, with the only other countries to exceed including China, Austria and Ireland.
No doubt the rises in the oil and iron ore price also supported the improvement in our commodity driven market.
While positives can be drawn from this past week, we remain wary of the increase in debt associated with the GDP growth as well as the uncertainties stemming from the US elections, certain to play out in the media on a daily basis until the conclusion in November this year.
Many of the sectors that have been dragging on the index over recent months performed strongly last week, with the Financials (+7.99%), Materials (+7.85%) and Energy (+7.74%) sectors leading the way.
This week will be an interesting test of the underlying confidence in the economic strength of the nation, as both business confidence and consumer confidence numbers will be released.
The ASX moved from a three day settlement for shares purchased and sold (T+3) to a two day settlement, in line with global standards. From today, all shares will be settled on a T+2 timeframe.
- The Australian economy grew at a better than expected pace, with GDP growth of 0.6% for the final quarter of 2015, which equates to an annualised growth pace of 3.0%. Growth was mainly shown in household consumption levels (up 0.8%) and government consumption expenditure (up 0.7%).
- The RBA announced that the cash rate would remain at 2% (as had been widely expected). The accompanying statement suggested little change in the Bank's views. Specifically, the statement noted that "the Board judged that there were reasonable prospects for continued growth in the economy, with inflation close to target.”
- Data on the property market in Australia showed:
- Building approvals were down by 7.5% in January, to be 15.5% lower than a year ago, however;
- New home sales were up 3.1% for the month of January.
- Australia’s trade deficit for January was $2.9 billion. Exports rose 1.1% for the month, while imports fell by a comparable amount. While the value of iron ore exports are at their lowest levels since 2010, iron ore prices have risen almost 40% since December and production volumes are surging.
- Super Tuesday in the US (Primary Elections) saw the Presidential race narrow its focus to Clinton and Trump, with Trump ending the day as unrivalled favourite for the Republic party and Clinton finding success in the Southern states for the Democrats. Expect news stories on this race and the remaining nominees until Election Day, 8 November 2016.
- In continuing signs of labour market strength, the US added 242,000 jobs in February. The unemployment rate held steady at 4.9% however average wages feel slightly by 0.1%.
- There was continuing improvement in the European labour market (albeit still an area of concern), with the unemployment rate declining to 10.3% in January form 10.4% in December. Germany remained the most attractive region, with an unemployment rate of 4.3%, whereas Spain and Greece continue to struggle at 20.5% and 24.6% respectively.
- Manufacturing levels in China contracted again, for the seventh straight month. The Purchasing Managers Index (PMI) showed a reading of 49, down from 49.4 last month. Readings below 50 indicate contraction.
- BHP Billiton (BHP) and Vale finalised negotiations for the compensation deal following the Samarco dam collapse. BHP must provide compensation of up to US$2.4 billion over six years, which amounts to roughly half the public claim lodged by the Brazilian authorities.
- National Australia Bank (NAB) announced a 0.15% rise in mortgage rates for principal and interest investor loans, likely derived from the increasing wholesale funding costs.
- Woolworths (WOW) had its credit rating downgraded by Moody’s to Baa2 and retained a negative outlook for the, after the write off of Masters. Woolworths will now find it more expensive to borrow money as a result of the downgrade.
- Qantas (QAN) was allocated a credit rating upgrade following the attractive profit report released last month.
- Medibank Private (MPL) and other private health funds were approved to increase premiums by 5.6%, well ahead of the current Australian inflation rate.
The Week Ahead
- US: Wholesale inventories are due out.
- Australia: NAB business confidence/conditions, Westpac Consumer Confidence, Housing and Lending Finance Levels.
- Eurozone: GDP will be closely watched and the European Central Bank (ECB) meet to discuss monetary policy.
- China: Inflation levels as reflected by the Consumer Price Index (CPI).
- Japan: GDP.