6 May 2016
Markets
- The local market pushed higher this week off the back of a surprise cut in rates from the RBA and reasonable first half reporting from the banks.
- Global stocks fell as concerns arose regarding the pace of global growth after the European Union downgraded its growth forecast for this year and next. US corporate reporting season also continued to be mixed.
- In local stock news, Westpac’s first half profit rose 3% to $3.9bn. The bank maintained their dividend even though they reported more bad loans in its institutional lending arm. The stock price fell as investors were spooked by the increase in bad loans.
- ANZ Bank reported first half cash earnings of $2.78bn, coming in below expectations, with a blowout in expenses (mostly one off items). Revenue growth slowed. The bank cut their interim dividend 6c from last year’s interim dividend, as they gradually shift to a payout ratio closer to its historical range in order to grow it sustainably from here. The share price pushed higher.
- National Australia Bank held their dividend steady as first half cash earnings beat expectations. NAB posted a one off $1.74bn loss, which includes write-downs from the sale of their UK operations. Expense growth outstripped revenue growth, whilst charge for bad and doubtful debts fell.
- Telstra has indicated they will detail a capital management program (i.e. share buybacks, special dividends) of at least $1.5bn when it releases its full year results in August. Shares pushed higher.
- Woolworths released their third quarter sales update, with total sales increasing slightly. Sales growth fell slightly in the Australian Food & Liquor division, showing a declining pace of negative sales growth (a positive), and volumes improved. Big W’s result was quite poor in contrast, and shares fell.
- The Brazilian authorities announced that they had commenced proceedings against BHP and their JV partner in Brazil for US$43bn relating to the dam incident. The news took markets by surprise given a compensation/remediation framework had already been agreed. Shares fell.
- The Australian dollar fell after the RBA cut rates citing concerns regarding low inflation and very low wages growth.
Economics
- The RBA surprised the equity market by cutting the cash rate a further 0.25% to 1.75%, the first cut in 12 months. The negative inflation reading for the March quarter spooked them into action, whilst the slower growth in house prices and new loans afforded the RBA room to ease.
- The fall in inflation resulted in only the second time in 15 years that inflation has come in below the RBA’s 2-3% target band.
- A key April business survey came in weaker across most of its key components, but surveyed business conditions and confidence remain above five year averages. It will be interesting to see how businesses digest the budget.
- House prices posted a rebound in April, rising by 1.7%, the largest monthly gain since July 2015. As a result, prices rose 2.4% over the past three months, with annual growth now 7.3% on the same time last year. Price momentum has eased, but still reasonably solid figures.
Politics
- The Federal Treasurer Scott Morrison released the Government’s budget with winners being small businesses and roads & public transport. The main losers were people with larger superannuation balances and multi-national companies. The budget had plenty of sensible long term policies, but very little in the way of measures which would benefit the economy in the short term.
- Federal Opposition Leader Bill Shorten announced his budget reply, which was the complete opposite – plenty of immediate, short term measures, with little foresight to the future.
- Republican Presidential candidate Donald Trump now has a clear run to be the leading Republican candidate in the presidential elections after his competition (Ted Cruz, John Kasich) withdrew from the race realising they had no chance of catching him.
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