17 Jun 2016
Markets
- Concerns regarding the UK’s potential exit from the European Union pushed all markets lower, especially European and Asian markets.
- MSCI, one of the world’s largest index providers, decided to delay China’s full addition to its emerging market indices, sighting some obstacles still to be overcome. They will reconsider the decision next year. If the move occurs, Chinese equities will represent more than 50% of the emerging market index.
- The risk-off environment pushed growth assets lower and defensive assets higher, with German 10 year bond yields dropping below 0% for first time ever.
- In M&A news, Microsoft announced they had entered into an agreement to purchase LinkedIn in an all cash deal valuing the company at US$26.2bn, a premium of nearly 50% to the share’s last closing price. LinkedIn will retain its own brand and culture.
- In local stock news, Medibank is being taken to Federal Court by the competition regulator over allegations it has mislead customers by failing to tell them about limits to benefit payments for in-hospital pathology and radiology. The action relates to Medibank’s discount subsidiary AHM.
- Suncorp Group announced that it had received 8,000 claims as a result of the severe low pressure system that impacted the east coast of Australia. The total financial impact is expected to be in the range of $60-80m, well within Suncorp’s allowance for 2016.
- Crown Resorts has announced that it intends to pursue a demerger of certain international investments (Macau stake and others), adopt a new dividend policy to pay out 100% of net profit after tax, and explore a potential IPO of a 49% interest in a property trust which would own their Australian hotels.
- Oil prices were down sharply on fears regarding Britain’s potential exit from the European Union.
Economics
- Australian employment rose broadly as expected in May, up 18,000. The unemployment rate remained steady at 5.7%, with data signalling a decent trend for jobs growth but with weaker trends across hours worked and full time employment (relative to part time employment).
- UBS continues to believe that the outlook for Australian housing is moderating rather than turning down. An index which measures the number of construction cranes in the sky surged 165% to 525 cranes, since the third quarter of 2014. UBS expects strong supply to continue this year and next, before a sharp fall in 2018. They have prices up this year, flat for 2017, and possible falls in 2018.
- The US central bank acknowledged that hiring had slowed in the economy and that business fixed investment was soft, signalling a slower approach in raising rates. The chance of July rate rise is now down to 6%.
- US retail sales were up in May, coming in above expectations. In addition, April’s strong gain of 1.3% was unrevised, showing that consumers are more confident with increased spending.
- US inflation was up in May as the price of oil and rents increased. Overall, and excluding volatile food and energy prices, inflation is 2.2% higher from 2015 levels.
- Chinese economic data showed that fixed asset investment growth had dropped below 10% for the first time since 2000. This is to be expected give the transition towards a more service-led economy.
Politics
- New polls showed increasing support for a UK exit from the European Union, which sent markets into tailspin.
- Donald Trump erred in politicising the tragic massacre in Orlando through a couple of Tweets not long after the event occurred. A couple of senior people from his own party finally spoke out against some of his policies after President Obama called them out. Trump’s popularity rating has taken a hit.
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