23 Jan 2015
Markets
- European shares hit seven year highs as the European Central Bank (ECB) announced their version for quantitative easing (QE – money printing) late in the week. The move resulted in the euro falling to an 11 year low against the US dollar, and the yields on government bonds hit record lows.
- The QE program will involve the purchase of bonds to the value of 60bn euros per month until at least September 2016. The ECB will buy investment grade bonds from governments and European institutions.
- Equity markets globally followed suit, pushing higher on renewed optimism for the Eurozone.
- In local stock news, CSL shares fell after the Centre for Diseases Control (CDC) in the US said that this year’s flu vaccine has been less effective compared to previous years. The CDC’s data showed that getting a flu vaccine this season reduced a person’s risk of having to go the doctor by 23% (versus a 60% reduction in previous years).
- Stockland announced it will embark on the largest master planned residential community development it had ever undertaken in Victoria, creating around 11,000 new homes. The $4.6bn development will occupy 1,141 hectares in Melbourne’s north growth corridor. The company also announced it has acquired 143 hectares of residential zone land at Scarborough in Brisbane’s north for $67m.
- Rio Tinto released its robust fourth quarter production performance. The company’s global iron ore shipments of 302.6 megatonnes were 17% higher than 2013, and its production of 295.4 megatonnes was an 11% increase.
- The oil price fell on concerns about the health of the Chinese economy. The Chinese Premier was quoted saying the economy faces significant downward pressure this year.
- The gold price rose this week, hitting four months highs, following the Swiss National Bank’s decision to abandon its peg to the euro currency and the ECB’s announcement of QE.
Economics
- A key Australian consumer confident index rose slightly, bringing the index back up to its long run average. The data may have been boosted by seasonal factors, and lower petrol prices haven’t delivered as big of a bounce to confidence as expected.
- US consumer sentiment rose to 11 year highs in January, whilst consumer prices fell as expected in December (driven by a fall in energy costs). Excluding energy, consumer prices were flat.
- US housing starts were up 4.4% in December above market expectations. Single family home starts were 7.2% higher, driving the overall gain.
- The Central Bank of Canada cut its key policy rate by 0.25% to 0.75%, fearing that low commodity prices will hurt the country’s growth rate. The Canadian and Australian economies have very similar drivers, resulting in heightened talk that the RBA may be next to cut rates.
- China’s economy expanded at a better than expected 7.4% in 2014, just short of an official growth target of 7.5%, making it the first time the Chinese government has missed its aim since 1998. Economic growth is expected to slow further in 2015 as Chinese leaders emphasise a new normal of slower expansion and continue to unveil key reforms.
- The International Monetary Fund expects the global economy to grow by 3.5% in 2015, up from 3.3% growth in both 2013 and 2014. The increase on the last few years’ numbers is due to stronger US growth forecasts.
Politics
- Greek election polls have the radical left Syriza party leading but struggling to form a majority to govern. The Greek people are clearly willing to try something different to move away from the old, corrupt establishment Greek politics has become. Markets and the global economy are hoping that Syriza aren’t as radical (removal from the EU, write off Greece’s debt, nationalise banks, restore the minimum wage, abolish recent labour market reforms) as they appear to be.
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