3 Jun 2016
Markets
- The local equity market finished lower this week on the back of weak leads from foreign markets, and some profit taking after a strong couple of weeks.
- The US market held steady whilst European and Asian markets fell in light of falling commodity prices.
- Credit rating agency Fitch affirmed its ratings on the big 4 banks and said the lenders can manage growing macro risks associated with rising household debt and strong house price growth.
- Corporate profits in Australia continued to decline in the March quarter, adding drag to the value of national output. Gross operating profits were down nearly 5% in the quarter and down over 8% on the same period last year.
- In local stock news, National Australia Bank announced the offer of a new hybrid security to assist in raising capital to meet regulatory requirements. The deal comes on the back of Westpac’s most recent issue and CBA’s issue earlier in the year. ANZ is eyeing an issue into the US market rather than here.
- Spark Infrastructure exited its 10.6% economic interest in DUET Group. The divestiture will be done in two phases. The proceeds will be used to repay its corporate debt facilities. Spark also announced a better than expected final regulatory decision on its Victorian electricity distribution companies.
- M&A activity finally began to emerge in the Australian market with ALS rejecting a takeover approach from private equity investors at a big premium to the share’s last traded price, whilst Patties Foods has backed a $230m takeover bid from a private equity company.
Economics
- Australia’s economic growth is being almost entirely driven by a massive surge in exports last quarter. Rising shipments of iron ore and coal helped offset plunging commodity prices during the March quarter. Net exports alone added 1.1% to economic growth in the quarter.
- The economy accelerated to its fastest annual pace in 3.5 years, smashing expectations across the market. A surge in exports and a boost in household spending were the drivers. Annual growth came in at 3.1%. The RBA may not need to cut rates as aggressively as some are expecting.
- May house prices rebounded 1.6% for the month and are running at 10% growth on the same time last year, let by units.
- New housing approvals rose in April to their highest level in six months, pushed higher by an 8% rise in apartments. The total of 20,243 approvals was the most since October. The monthly figures indicated a total of 234,374 new approvals in the year to April.
- However, other data showed that new home sales fell 4.7% in April as sales of apartments fell, as did sales of detached houses (single dwelling) in every state except Victoria. The adage “if you build it, they will come” doesn’t account for price sensitivities.
- US central bank Chairwoman Janet Yellen hinted that if the economy continued to improve you would definitely see a rate hike sooner rather than later. The consensus of a June rate hike is now up around 40%.
- US first quarter economic growth was revised up to 0.8% from an originally reported 0.5% gain. The revision was below expectations. The change was driven by revisions to residential investment, private inventories and trade.
- Rating agency Moody’s published a note on China expressing confidence that the Chinese authorities have the tools to avert a financial crisis.
- Japanese consumer prices fell again in April, adding to pressure on the central bank to unveil more easing measures to boost inflation. Looks like any further changes in the GST are off the agenda. More debt please.
Politics
- On the US political trail, Donald Trump secured enough support to claim the Republican nomination whereas Hillary Clinton was hurt by falling poll numbers and an unfavourable finding from the investigation into her email while Secretary of State.
- The Eurogroup announced a multi-timeframe deal on Greece where the IMF agreed to rejoin the bailout effort with new loans, and Germany and other countries pledged to restructure Greece’s 2018 rescue loans. This allowed 10.3bn euro in aid to be disbursed over several instalments.
- The latest Brexit poll (i.e. Britain’s vote to stay or leave the European Union) is concerning with 46% for staying, 43% for going, and 11% undecided (or maybe don’t care) – a little too close for comfort.
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