6 Feb 2015
Markets
- Boosted by the surprise RBA move to cut rates, the Australian equity market broke through a 7 year high led predominantly by the higher yielding sectors (banks, utilities, listed property).
- Global markets also pushed higher, led by the US market, which was supported by higher oil prices, M&A activity and better earnings announcements from companies.
- In local stock news, JB Hi-Fi reported half year results which were mixed given the tough retail environment. Sales growth was up slightly, but comparable sales were down and the cost of doing business was up.
- Federation Centres and Novion Property Group (the renamed CFS Retail Property Trust) have entered a merger agreement that will create a $22bn real estate investment trust. The merged entity will include management of 102 shopping centres with over $18.2bn in annual retail sales. Both company boards support the deal.
- National Australia Bank has delivered a strong lift in first quarter earnings. NAB posted a cash profit of $1.65bn, a 6% increase on the same period last year. The lift was due to stronger markets income, continued growth in mortgage lending and improved business lending volumes.
- Oil rallied this week as prices jumped on speculation that a sharp decline in US drilling activity will result in supply declines.
- The Australian dollar fell sharply (against the US dollar) immediately after the RBA rate cut, but recovered later in the week as the US dollar fell.
Economics
- The RBA board surprised markets with a cut of 0.25% to the official cash rate to 2.25%. The cut was earlier than markets have been expecting given the lack of data this early in the year. A pre-emptive move by the RBA.
- Retail sales for December were slightly below expectations with new data showing the rate of growth in retail sales rose only slightly in the lead up to Christmas.
- National Australia Bank’s quarterly business survey revealed a ‘two-speed patchwork economy’ where the construction and services industries benefit from low rates, whilst the commodity dependent companies lag. Business confidence also dropped.
- The US economy grew at a 2.6% rate in the fourth quarter, affected by weak business investment and the rising US dollar (which affected the trade deficit). The rate was below economists’ expectations and well below the previous quarter’s growth rate of 5%. Full year growth came in at 2.4%. A much higher growth rate is needed.
- US consumer sentiment rose in January to finish well above the December reading. Falling energy prices are clearly assisting, but not yet supporting consumer spending which dipped in December (largest monthly drop since September 2009) as the savings rate rose.
- A key Chinese manufacturing data point fell into contraction territory. Demand remains weak and more easy policy measures will be needed from the Chinese government to prevent further contraction.
Politics
- Focus this week has been on PM Abbott’s tenuous grip on power following the Queensland Liberal party’s demoralising loss on the weekend. Rumours of an internal spill are rife with news turning to potential new leaders in Malcolm Turnbull, Joe Hockey and Julie Bishop. Fresh polling shows a drastic plunge in the PM’s standing. If anything is be done, now is the time, given we’re just under two years out from the next election.
- Greek President Tsipras and Finance Minister Varoufakis begun their wheeling and dealing tours of Europe in attempts to get Eurozone officials and the European Central Bank (ECB) on-side. Reports so far show the meetings were cordial, however, this mustn’t have been the case as the ECB announced shortly after that they would reject Greek bonds as collateral. Tensions are arising.
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