12 Feb 2016
Markets
- Global concerns pushed markets lower this week, with focus turning to European banks.
- Japan and Europe were hardest hit. Japan failed to effectively communicate their move to a negative cash rate, and European banks came under pressure as investors questioned their viability.
- The US market is now trading at its lowest level since April 2014 and European banks slid to their lowest level since 2012.
- In local stock news, Boral rose strongly after reporting solid results for the half year. Revenue was down, but net profit was up 31% and earnings per share rose 28% on the previous period.
- CBA has maintained its dividend, reporting an interim cash profit lift of 4%. The result was slightly about forecasts.
- Computershare posted a 10.5% drop in net profit for the first half of the financial year as a stronger US dollar and falling equity markets continue to exert pressure on the business. Pleasingly, revenue was only down 2%, whilst the company has been acquiring other businesses in order to diversify its revenue streams.
- Carsales.com says it expects revenue and earnings to remain solid throughout the 2nd half of the financial year. In the 1st half, net profit rose 10% whilst revenue was up 11%.
- Rio Tinto released its full year result with net profit after tax in line with market expectations. Notably, Rio dropped their progressive dividend policy in order to free up capital (possibly for acquisitions), announced heavy capital expenditure cuts ($3bn over next two years), and approximately $2bn in asset impairments.
Economics
- The number of Australian job advertisements has risen with moderate gains expected in the coming months.
- New home sales bounced back in December following three consecutive months of decline. A key report found sale volumes jumped 6% in the month with apartment sales soaring. Data is consistent with healthy levels of construction volumes persisting in the 1st half of 2016.
- The US economy added 151,000 jobs last month, below economist expectations. Markets were disappointed. The unemployment rate fell to 4.9%, the lowest rate since early 2008. Importantly, wages showed good growth, rising 2.5% over the year.
- Comments from the US central bank this week were particularly dovish on the US economy, thus leading market participants to believe that no more rate rises were on the horizon. The market has very quickly gone from expecting 2-3 rates rises to zero rate rises.
- The Chinese central bank has indicated its reluctance to cut interest rates any further, citing potential currency falls and capital outflows. But the bank remains ready to lower rates further if needed.
Politics
- China’s capital flows remain very topical, with forecasts for another big drop in foreign currency reserves in January. For some, this suggests that the government’s recent measures to control capital outflows are not working or are yet to have a major impact. For others, the measures may have helped to prevent a much larger fall.
- Donald Trump (Republican) and Bernie Sanders (Democrat) have respectively won the 2nd round of key voting in the US to see who will lead each party into the presidential elections. It’s fair to say that markets and the rest of the world are a little concerned with the field of presidential candidates.
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