1 Jun 2018
Italy sends investors into a spin.
Markets
- Equity markets mostly finished lower this week as risks rose.
- The US government 10yr bond yield slumped (prices higher) with the largest single day decline since June 2016, as investors sought safety amidst rising European issues.
- In local stock news, Wesfarmers announced it was ending its UK hardware ambitions by selling the Homebase chain it bought in 2016, with current management admitting they got it wrong. Investors seemed pleased by the announcement as the share price rose, given the sale would put an end to their investment plans which the market was concerned about.
- APN Outdoor’s growing advertising sales momentum has led the outdoor advertiser to upgrade revenue guidance and hence also upgrade earnings guidance.
- The oil price remained rather flat this week. This followed the fairly sharp drop in price at the end of last week after Saudi Arabia and Russia said they were ready to ease supply cuts that have pushed prices to their highest since 2014
- The flight to safety, following rising European issues, led the Aussie dollar lower as investors sought out protection in the US dollar.
Economics
- A Reserve Bank of Australia board member was surprisingly open with the Wall Street Journal where he outright dismissed the importance of house prices in the outlook for future interest rate settings. A ridiculous comment. The absolute level of house prices may not be high on their priority list, but the absolute level of debt at the household level is currently their number 1 concern.
- US economic data was mixed with capital goods orders increasing more than expected, an indicator that business spending plans are increasing. Consumer sentiment came in slightly below expectations, but consumer confidence rose to remain near an 18 year high. US consumption also rose.
- Confirmation that Britain’s economy barely grew during the 1st quarter of 2018 added pressure to the Pound on a 5 month low as worries over Brexit continued to take their toll. This marked the slowest rate of growth since the 4th quarter of 2012. Reality is hitting home.
Politics
- North Korea showed off some much needed diplomacy saying it still hoped for a “Trump formula” to resolve the standoff over its nuclear weapons program, noting the country was open to resolving issues with the USA. President Trump then announced he’d sent another team to North Korea to make arrangements for a summit.
- Spain’s main opposition party called for a vote of no confidence on Prime Minister Rajoy over a corruption case that involved senior members of his party.
- Italy is back to having no government after the President’s newly anointed Prime Minister resigned. This came after the President vetoed the coalition’s choice of minister for finance (a eurosceptic). Fresh new elections seem likely, which may end up being seen as a proxy vote for staying or leaving the EU.
- China and the US announced a tentative solution to their trade dispute with the US agreeing to release a list of US$50bn worth of Chinese goods that would’ve been subject to a 25% tariff. However, the US indicated it will continue to pursue litigation against China at the World Trade Organisation.
- However, the US confirmed that tariffs on steel and aluminium imports from its allies would go into effect on Friday. Both Mexico and Canada have indicated they will be imposing retaliatory tariffs on the US.
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