27 Mar 2015
Markets
- The Australian equity market fell this week following weak leads from the banks. The market fall was in line with global share markets as concerns arose regarding weak US economic data, the overheated US and European tech sectors, and the escalating conflict in Yemen.
- In local stock news, Premier Investments announced they will pay a special dividend to shareholders on the back of strong first half profit, buoyed by online sales growth and continued strength of its core Smiggle and Peter Alexander Brands. This goes to show that high quality management and the right strategy can navigate even the worse of industry conditions.
- Myer slumped further as a number of shareholders are taking legal action against the department store owner. This followed last week’s surprise profit downgrade for the full year, which some investors think should have been flagged earlier.
- TPG Telecom has lifted its full year earnings guidance on the back of a strong first half profit. Net profit was up 18% on the previous corresponding period whilst revenues were up nearly 60%. Their takeover approach of iiNet is on shaky ground as large iiNet shareholders demand a greater premium.
- The oil price rose this week as the US dollar continued to fall along with the number of rigs drilling for oil. The oil price was also supported by concerns regarding the collective Middle East reaction against rebels in Yemen.
- The Australian dollar remained around the 78c market against the USD as further rhetoric from US central bank members indicated a preference for near zero rates for longer because of continuing uncertainty in the economy.
Economics
- Economy-wide spending has eased from the record pace seen in the latter half of 2014. In February, spending was down 0.3% after a rise of 0.8% in January. In the 12 months to February, spending growth eased to its slowest pace in two years.
- US durable goods orders (a key indicator of the strength of the economy) fell 1.4% in February from January levels. Economists had expected order to rise. Stock markets didn’t take the news very well.
- A key US consumer sentiment index fell in March, shy of forecasts and down from a month earlier. Expectations for future economic conditions also slipped.
- The US consumer price index rose 0.2% in February from the previous month, the first increase since October last year. Over the year, overall inflation was flat whilst core inflation was up 1.7%, bringing the reading close to the US central bank’s 2% target.
- The Euro zone February consumer price index (CPI) was unchanged at the final reading at 0.3%, whilst core CPI was revised up to 0.7%.
- Activity in China’s manufacturing sector has slipped to an 11 month low in March and is now indicating the sector is contracting.
- Chinese consumer sentiment has rebounded to its highest level since July 2014. Consumers are growing more optimistic following easing monetary policy conditions.
Politics
- The federal opposition resources minister Gary Gray insists that the risk of developing coal seam gas can be safely managed and cited Queensland’s booming industry, a position that undermines NSW Labor’s opposition to coal seam gas. He also criticised placing export restrictions on gas, another measure backed by NSW Labor.
- Federal Labor minister Ed Husic had a brain explosion when he stated that he was yet to be convinced of the wisdom of the RBA and APRA applying regulatory tools behind closed doors without the public’s knowledge. There’s a multitude of very important reasons why applying these tools in secret is the best approach!
Stock insights
- Toll Holdings takeover bid: Following Toll Holdings (TOL) relatively soft first half result, with interim dividend maintained, the company received a binding full cash takeover offer by Japan Post at $9.04, valuing the company at $6.5bn. Read more.
- BHP demerger note: BHP Billiton has announced details of the proposed demerger of their non-core assets. The proposal will split the company into two separately listed companies, BHP Billiton and South32, via an in-specie distribution of South32 shares. Read more.
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