1 Jul 2016
Markets
- Markets rallied quite strongly this week, somewhat surprisingly, given markets’ recent record of overreacting to unknowns and uncertainty. Rationality has prevailed for now.
- Rhetoric out of Europe is indicating that the Brits will drag their heels on notifying the European Parliament of their intention to leave in order to see if (and how) conditions worsen, with the possibility of changing their minds to exit.
- The Brits have asked Europe if they can start some negotiations now (pre issuing Article 50), essentially to see how hard (or soft) they might be punished by European members, before deciding on when/whether to issue Article 50. European members have politely declined.
- Italian banks were on the agenda this week as the Italian government is weighing measures to inject up to 40bn euro of capital into the Italian banks post the Brexit fallout. Using taxpayer money to bail out banks won’t go down well in light of the rise in the populist vote.
- In local stock news, QBE has indicated that they don’t anticipate any material impact on their day to day insurance operations after the Brexit decision. But they conceded that they may have to move business subsidiaries out of the UK if European passport rules change.
- BHP Billiton has said it plans to boost its exploration budget by 29% to about $1.2bn next year, as they count on new finds of oil and copper to drive growth. The figure represents about 18% of BHP’s total capital budget of $6.7bn over the 2017 financial year.
- Crown Resorts announced that the NSW planning commission has approved the applications for the modification of the concept plan for Barangaroo and for the construction of the Crown Sydney Hotel Resort at Barangaroo South. Both have been approved subject to a number of substantial modifications and conditions, currently being reviewed by Crown.
Economics
- Recently released data shows that government spending rebounded strongly last quarter, which helped boost the strong economic growth reading of 3.1%. Though, government spending has surged on a big pick-up in public sector wages, with government capital expenditure continuing to weaken.
- Growth in investment lending continues to slow, with Australian private sector credit growth coming in below last month’s reading. Housing credit grew 6.9% whilst owner-occupier lending grew 7.4%, rising at its fastest pace in almost six years.
- The UK was stripped of its top credit grade by credit rating agencies S&P and Fitch. Both also moved to negative outlooks on their ratings.
- US first quarter GDP was revised upward to 1.1%, which investors took a liking to. US consumer spending also rose, which follows an upward revision to April’s numbers.
- Markets are pricing only a 21% chance the US central bank will raise interest rates by its December policy meeting. Whilst that is possible, it appears markets are being overly pessimistic.
- Reports indicated that the Chinese central bank intervened in the currency market to stave off a sharp depreciation in the Yuan, allowing it to weaken by a similar amount to that which sent markets into a tailspin in September last year. No tailspin this time around; markets are being rational again.
Politics
- As expected, UK politics is now in disarray with the Conservatives struggling to elect a leader to be PM of a fragmented United Kingdom, and the passing of a no-confidence vote in the Labor leader. Boris Johnson, after leading the Conservative element to exit the EU, and potential front-runner to become the new PM, has decided he doesn’t want the poisoned chalice of PM.
- German Chancellor Merkel and other European officials once again stressed that there can be no single market access (i.e. free trade and free movement of capital and services within Europe) without acceptance of free migration from the EU.|
- Closer to home, betting agencies have all but given up on Labor winning the election. But that was also the case on the “leave vote” leading up to the British referendum. In less serious news, betting has been suspended on the leader of the losing party crying during their concession speech…
If you would like to meet with your Financial Adviser, please call us on (02) 9324 8888 or click here.
