10 Jun 2016
Markets
- The US market pushed higher, extending gains to close to a ten month high, as US central bank rate rises may be pushed back to later in the year.
- European markets moved lower following comments from European Central Bank head Mario Draghi on the future of the European economy. Investor George Soros didn’t help, stating that Brexit would cause the dissolution of the European Union.
- Eurozone bond yields pushed lower as a result, where we saw German ten year bonds hit new record lows at just under 0.04%.
- In local stock news, Woolworths will be discontinuing its Select private label range as the new CEO aims to restore sales growth to 4%. The plan is to replace Select, a mid-tier house brand, with the Woolworths label. The CEO also announced longer term aim of growing food & liquor volumes by 2%.
- Rio Tinto announced that it will commence cash tender offers to buy back up to $3bn of its outstanding debt due from 2018-2022 in US dollar-denominated notes. This follows the recent buy back of $1.5bn of its 2017-2018 debt. Good capital management given there is plenty of cash on the balance sheet.
- The Port Hedland Port Authority released export data for May showing growth in iron ore exports of 4%. BHP’s share was 55%, representing a 12% increase (mainly at the expense of Fortescue).
- The Australian dollar pushed higher this week as the US dollar fell away due to a poor job number read and comments from the US central bank regarding future interest rate moves.
- The oil price pushed higher as global production outages remained in focus, particularly Nigeria, where militants have bombed more pipelines. Nigerian production is estimated to have fallen by about one million barrels per day this year. Canadian production falls have resulted in the removal of another two million barrels per day.
Economics
- The RBA left rates on hold, preferring to wait and see how the cut to rates at the May meeting filtered through the economy.
- Australian retail sales for April lifted 3.6%, in line with March numbers, but below the 12 month rate. Supermarkets deteriorated, while cafes/restaurants were soft again. Household goods growth was strong again (driven by hardware), while department stores rebounded.
- Australia’s building activity has fallen, with a key data reading showing contraction. Declines in apartment building and commercial and engineering construction sub-sectors led the losses.
- Loans to property investors fell 5% in April, breaking a six month upward trend. Efforts by lenders to curb loans is working, along with concerns from investors regarding potential price falls. The data came in at the lowest level since June 2014.
- The US economy added only 38,000 jobs in May, well below the 158,000 expected economists. Some of the shortfall was due to a strike, but regardless, the number was well below recent numbers. The unemployment rate fell to 4.7%, the result of a falling participation rate. However, the job openings rate (demand for workers) rose to a new post GFC high.
- The US central bank addressed the poor jobs reading by signalling the economy is still strengthening enough to withstand gradual increases in interest rates and warned against attaching too much significance to one data point.
- European Central Bank head Mario Draghi said that the Eurozone is at risk of suffering lasting economic damage from weak productivity and low growth, re-stressing that central bank policy cannot be the only game in town. Nothing new here, but a strong calling out of politicians across the Eurozone to get their act together.
- The European Central Bank begun their corporate bond buying program with purchases in Germany, France, Italy, Spain and Belgium. The intention of the policy is to encourage firms to borrow and invest by reducing borrowing costs. There has already been a notable ramp up in corporate bond issuance since the policy was announced.
- Exports in China fell in May by 4.1% coming in well below expectations. Imports fell marginally, the smallest drop since late 2014. Chinese exports are a barometer for how the rest of the world is travelling, whilst imports speak to the strength of the Chinese economy (i.e. the small fall is a positive).
Politics>
- Local politics finally got interesting this week, with both major parties going head to head on their economic credentials and election policies. The Coalition had claimed that Labor’s budget black hole (i.e. funding for promises) is between $35bn and $66bn. Labor leader Shorten effectively conceded that this week, saying they expect deficits to be much large in the next four years before reaching a balanced budget at the same time the Coalition is proposing.
- Latest Brexit polls showed increased support for leaving the European Union. The “I don’t care” polling also remained elevated, which is concerning given the gravity of the decision and concerning that the electorate haven’t been informed correctly.
- In US election news, Hillary Clinton has claimed enough support for the Democratic nomination for President. She will now go head to head with Donald Trump.
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