11 Mar 2016
Markets
- Markets operated in a state of confusion this week, initially boosted by announced Chinese stimulus, before liking and then dis-liking the European Central Bank’s announced measures.
- The stimulus measures announced by the European Central Bank were extensive, but the Bank also let slip (possibly intended) that they don’t anticipate any further cuts in rates (i.e. no negative cash rate).
- In local stock news, Fortescue Metals Group announced a tie up with Brazilian iron ore major Vale, focusing on ways the two miners can work together to enhance the competitiveness of their products. Vale will acquire a minority equity stake in Fortescue, and may also invest in individual projects in the future.
- BHP hosed down hopes of a sustained rally in the iron price, saying steel demand growth will remain weak in the short term. The comments followed the commodity’s biggest one day gain on record, jumping 19% in one day to US$62 a tonne.
- Commodity prices rose this week with oil hitting a three month high. The rally was the result of Chinese officials pledging to spend more on building railways and roads.
Economics
- The European Central Bank announced extensive new stimulus measures. They moved the interest rate on excess bank reserves further negative, cut the cash rate to 0%, announced a EUR20bn increase to their monthly asset purchase program (now EUR80bn), and will now also include non-bank bonds in its monthly purchases. A bazooka indeed…
- The Australian economy is experiencing continuing positive momentum outside of the mining sector in early 2016, led by the service sectors. Business conditions improved in February whilst business confidence remains steady.
- Australian consumer sentiment has fallen in March, with a key reading showing the number of pessimists now exceed the number of optimists.
- The New Zealand Central Bank surprised by cutting rates 0.25% to 2.25% after only just recently stating that no cut was required. A low inflation reading, and perceptions of further price falls spooked them into action.
- The US economy added 242,000 jobs in February, well above expectations. January’s numbers were also revised higher.
- The US trade deficit grew last month as exports fell on a strong US dollar and slow global growth. Imports were also down, assisted by lower oil prices.
- Chinese trade data plunged stoking fears of the impact of a Chinese slowdown on the global economy. February trade data showed exports down 25.4% on the same time last year, while imports were off 13.8%. Some seasonality to the numbers, but still quite poor.
Politics
- The honeymoon appears to be over for PM Malcolm Turnbull with voter confidence in him hitting a five month low. On a two party basis, Labor and the Coalition are neck and neck, whilst the Coalition leads on primary terms. Turnbull maintains a significantly lead over Shorten as preferred PM. The people want action.
- Rumours of Donald Trump’s demise along with extensive negative advertising from former nominees within his own party haven’t dented Trump’s led in the Republican candidacy for President after he easily won in Mississippi and Michigan.
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