12 Dec 2014
Markets
- Equity markets took a turn for the worse this week as a flurry of negative news continued.
- Italy’s credit rating was downgraded to close to junk status, the Greeks called an unexpected snap election, economic data out of China and Japan was weak, and the Chinese government changed their regulation on the use of lowly rated debt.
- In stock news, BHP and RIO are on the verge of securing a long awaited US federal government land swap deal allowing them to build a huge $7.1bn copper mine in the US. They’ve been lobbying for 12 years. The land is next to the world’s largest untapped copper resource.
- Leighton Holdings has been selected to design and construct the M4 widening which will upgrade the 7.5km of the M4 motorway as part of the first stage of WestConnex. Leighton also announced they will be designing and constructing a new $1bn hospital on Sydney’s northern beaches for Healthscope.
- Santos’ share price continued to fall this week as the oil price continued to decline and concerns mounted the company will be forced to raise equity. The company confirmed it doesn’t need to raise equity, its credit rating remains in line with peers, and a reduction in its capital expenditure program is more appropriate until the oil price recovers.
- APA Group has confirmed will acquire the Queensland Curtis LNG (QCLNG) pipeline from BG Group for $US5bn ($A6.02bn). APA intends to raise $1.839bn through an entitlement offer to partly fund the acquisition, with an offer price of $6.60 per new stapled security. Shares in APA have been placed in a trading halt. APA shares last traded at $7.97.
- The long awaited Financial System Inquiry report was released this week. Key to remember that the recommendations are exactly that – they don’t have to be adopted by the government or regulators. But it is highly likely that the banks will be forced to strengthen their capital positions which will most likely mean lower shareholder returns in the future
Economics
- Australia’s unemployment rate rose in line with expectations in November to hit a 12-year high. The unemployment rate rose to 6.3% in the month, compared with 6.2% in October and is now at its highest level since September 2002. The rate will continue to rise given current conditions.
- Business confidence in November has strengthened to its highest point since the start of the year. The lower Australian dollar and expectations that the RBA cash rate remains on hold for 2015 are helping.
- However, consumer confidence has taken a dive to its lowest level in four months. The sharp fall was spurred by disappointing economic growth figures and headlines about the government’s economic management.
- A key US employment reading showed the addition of 321,000 new jobs in November indicating solid economic growth is starting to gain strength in the US. The number was well above forecasts and the strongest increase in jobs in almost three years.
- China’s monthly trade surplus hit a record in November, rising to US$54.47bn from US$45.4bn. The jump comes as imports defied expectations and fell dramatically, dropping 6.7% from a year ago, and against expectations of a rise. No good news for Australia.
Politics
- Japan goes to the polls again this weekend. Prime Minister Abe is looking for an even greater majority and to ensure voters clearly support his economic reform program (ie. the much talked about third arrow). Without the reform, Japan continues to be a basket-case indefinitely. With the reform, they stand a very good chance of returning to one of the world’s pre-eminent economies. It’s make or break.
- The Australian Prudential Regulation Authority will clamp down on lending to property investors, increasing the Reserve Bank of Australia’s scope to cut official interest rates (if needed) in the face of a faltering economy without risking a housing bubble. Banks should keep growth in loans to property investors below 10% a year, APRA told them in briefings. Credit growth to investors hit 9.9% in October.
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