13 Feb 2015
Markets
- Stock markets were hurt in the earlier week following rising concerns about Greece’s debt plan and escalating violence in eastern Ukraine. However, all ended well as markets globally finished the week on a high following reports of a Ukraine peace agreement, significant stimulus from the Swedish central bank, and strong US earnings results and M&A activity.
- In local stock news, CBA reported first half profit of $4.6bn which was in line with expectations. Profit was up 8% and the dividend was lifted. Yield hungry investors pushed the stock ever closer to $100 per share.
- Suncorp expects growth this financial year to be in the low single digits due to increased competition, low interest rates (bank growth slows when interest rates fall) and reduced reinsurance costs. The company reported first half net profit increase of 15%.
- Telstra reported results slightly ahead of expectations. Net profit after tax came in at $2.1bn. Revenue was up 1.6% and the dividend rose by 0.5c. Subscriber growth was very strong.
- Santos announced it expects to recognise a non-cash impairment charge of $1.6bn after tax in its 2014 full year accounts. The impairment to assets reflects the lower oil price. Importantly, there was no impairment of GLNG which is on track for first LNG in the second half of 2015, and within budget.
- The Australian dollar rose against the US dollar earlier in the week before fading away as US economic data strengthened, and expectations for a US central bank June rate rise and a RBA rate cut in March firmed.
Economics
- Following the 0.25% cut to the cash rate, the RBA downgraded its forecasts for Australia’s GDP growth and inflation giving some insight into the surprise rate cut. GDP (economic) growth has been revised down to 2.25% for the year to June.
- The January jobs report was worse than expected with 12,200 jobs lost and the unemployment rate rising from 6.1% to 6.4%, a 12 year high. We expect the unemployment rate to tick higher. Chance of another rate cut next month has risen substantially.
- The latest monthly home loan figures show first home buyers’ share of new loans issued in December fell to their lowest level since 2004. At the same time, owner occupiers borrowed more than $18bn in December, a new record and 3.8% higher than November.
- The US economy added an impressive 257,000 jobs in January, well above expectations. November and December’s jobs data were revised upwards. The unemployment rate actually rose to 5.7% as more people entered the workforce.
- A key US employment cost index, which measures wage and compensation growth, rose 0.6% in the fourth quarter of 2014, keeping the annual rise at 2.2%. Whilst recent US employment data has been very strong, this is not filtering through into wages just yet.
- The number of US rigs drilling for oil continues to fall with confirmation that 199 rigs were closed in January. This supply response will continue for the remainder of this year. Demand for oil has yet to show any increase, though OPEC has lifted their demand forecasts.
Politics
- PM Tony Abbott survived the leadership spill as the party voted to maintain the status quo. However, the ‘no’ vote was a high 39 votes, effectively telling the PM that things need to change, and change quickly, if he is to maintain current support levels. He is now under pressure to dump Treasurer Joe Hockey and replace him with Malcolm Turnbull.
- Greek bailout negotiations appear to have stalled with Greek finance ministers, the IMF and the ECB failing to reach an agreement. The Greek PM reiterated his commitment to renegotiate the terms of the bailout instead of accepting an extension of current terms. Greek banks have received a reprieve in the form of emergency funds from the European Central Bank as Greek citizens have been withdrawing 200-300 million euros a week. Negotiations continue.
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