19 Sep 2014
US CENTRAL BANK LAYS THE FOUNDATION FOR RATE RISES WHILST THE SCOTS HEAD TO THE POLLS
Markets
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Markets were choppy this week as investors digested what the potential “yes†vote for Scottish independence meant and how it might influence other regions around the world wanting autonomy.
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Markets also cautiously awaited new guidance from the US Fed regarding when they plan to raise rates. The resultant guidance took the market by surprise given comments they made earlier in the week.
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The Aussie market fell as investors sold off overpriced high yielding stocks.
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The US market rallied to all-time highs as investors were comforted by signals from the US Fed that it remains on a measured course.
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In local stock news, a consortium led by Leighton Holdings and UGL have won a $3.7bn NSW government contract to supply operations, trains and systems for the North West Rail Link in Sydney.
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Premier Investments are eyeing further expansion for its Smiggle chain in the UK, with up to 30 stores planned by the end of 2015. Smiggle and Peter Alexander were the standouts in their results announcement.
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Oil and gas player AWE shares surged on news of a major gas discovery in the north Perth Basin. The company said the find could be the largest onshore gas discovery in WA in 50 years. Origin Energy has a 50% interest in the field.
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The Aussie dollar continued to fall against the US dollar this week as momentum gathered regarding the US Fed raising rates quicker than expected.
Economics
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The US central bank did its best to confuse markets citing earlier in the week that it would end its bond-buying program (QE) but that rates will remain at current levels for a considerable time. They changed their mind somewhat by the end of the week stating they expect rates to be slightly over 1% by end of 2015.
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US industrial production fell in August, the first decline since January. A key manufacturing index rose in September to its highest level since October 2009, and well above expectations.
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Chinese economic data disappointed with results falling short of forecasts. Retail sales rose 12%, production was up 7% (near 6 year low, putting further pressure on the iron ore price), and investment up 16.5%. China is slowing, government stimulus is on the way.
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Chinese bank lending increased significantly in August, almost double the previous months figure. New loans rose to AU$140bn and confirms the government stance on modest support for the economy.
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Foreign direct investment into China dropped to a 4 year low in August. The figure, which excludes investment in financial sectors, fell 14% in August. The fall is likely the result of a clamp down in corruption and the government probes into foreign companies.
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China central bank is injecting AU$90bn into the country 5 major state-owned banks as it moves to counter a worse than expected slowdown. The move shows the Chinese government is continuing to prefer targeted measures as opposed to across the board stimulus.
Politics
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The Scots went to the polls overnight to decide on whether Scotland should secede from the UK. The vote is expected to be lot closer than originally expected. The yes voters seem too caught up in the cultural significance and pride to understand the financial ramifications (ie. currency, debt, inability to fund themselves, etc) of a split from the UK. If independence is successful, expect a few other semi-autonomous regions to test the waters (eg. Catalonia in Spain).
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The Reserve Bank of Australia and the federal government are at odds over the risks of an overheating housing market. Federal Treasurer Joe Hockey played down talk of a dangerous surge in property prices, which the RBA then countered 2 hours later in their minutes from the last board meeting which noted concerns about “speculative demand†from investors.
