20 Mar 2015
Markets
- The Aussie equity market fell earlier in the week before recovering strongly. Global markets followed suit.
- Weakening commodity prices put pressure on the resources sector before stocks were boosted by a change in rhetoric from the US central bank regarding the speed of interest rate rises.
- European stocks rallied strongly as the European Central Bank’s quantitative easing program got underway. German stocks broke through a new all-time high.
- Asian markets were supported by further stimulus measures from the Chinese government and the delay in US rate rises which caused the US dollar to fall (much of Asian and Emerging Market debt is denominated in US dollars).
- In local stock news, BHP’s board approved the de-merger of BHP and South32, with a shareholder vote to take place in May. South32 will house BHP’s non-core assets, will return at least 40% of its earnings to shareholders in dividends, and will carry a manageable debt load.
- Fortescue Metals Group fell sharply as it pulled its US$2.5bn secured bond issue in the US. Investors demanded an interest rate of close to 9% whilst Fortescue was only looking to pay around high 7s. In contrast, BHP raised a quick-fire $1bn, achieving one of the lowest ever interest rates by an Australian company for a 5 year bond.
- Japan Post’s proposed $6.5bn takeover offer for logistics group Toll Holdings has been approved by the Foreign Investment Review Board. The shareholder vote in May is the final step.
- Oil prices fell as concerns mounted that record US production may put a strain on storage capacity driving prices lower. US oil stockpiles hit the highest level in 80 years.
Economics
- The minutes from the last Reserve Bank of Australia meeting showed that the members decided to wait for more economic data before making a further cut to rates.
- A report from Deloitte showed that Australian retail sales grew close to 5% over the 2014 calendar year, making it the strongest year for the sector since before the GFC. However, the report indicated that the sector may begin to struggle this year.
- The US central bank dropped its pledge to be “patient” before raising interest rates, freeing its hand to lift rates for the first time in nearly a decade. However, the US central bank will only start lifting rates once it becomes reasonably confident that inflation is heading back to 2%. This may take a while.
- The US central bank also reduced its forecasts for growth and inflation and projected a shallower path for interest rate increases (ie. rates will rise very slowly going forward).
- Mixed US economic data continued to flow through with consumer sentiment dropping in March, coming in below expectations. US economic growth was also revised lower.
- The rising US dollar continues to wreak havoc on US corporates with industrial production coming in below economist forecasts, whilst a key indicator of the strength of the New York manufacturing sector also fell.
Politics
- PM Tony Abbott and some of his cabinet ministers have canvassed the prospect of an early double dissolution election to be held in the next few months following the May budget in order to clear the hostile Senate, which the PM referred to as a “feral Senate”.
- A UBS client note on the privatisation of the NSW electricity made headlines after the authors indicated that the sale was good for the state (in terms of what the money will be used for – much needed infrastructure), but not good for the budget. The note was “adjusted” later in the afternoon given UBS are the NSW government’s privatisation advisers.
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