5 May 2017
Aussie dollar falls on Chinese growth concerns
Markets
- Local and global equity markets were in a holding pattern as investors eagerly await the results of the French election this weekend, choosing not to read too much into recent polling results.
- European markets pushed higher with market-friendly French Presidential candidate Macron winning live debates and maintaining a large lead in the polls.
- US companies continued to report solid quarterly results, with 80% having now reported, producing an earnings growth rate of over 13%.
- In local stock news, Sydney Airport has declined their option to build and operate Sydney’s 2nd airport at Badgerys Creek. Markets were pleased with the decision given it had been deemed uneconomical for the company to participate. The Federal Government subsequently announced they would build it.
- Woolworths provided 3rd quarter sales results with Australian food sales up over 5%. Online sales grew in the quarter, increasing by 20%. Wesfarmers (Coles food & liquor) sales result wasn’t as strong.
- ANZ and National Australian Bank reported 1st half results, with ANZ continuing to strengthen their balance sheet and exit non-core businesses in a messy result which saw margins fall and bad and doubtful debt charges fall sharply (a positive). In contrast, NAB’s result was cleaner and a little better, with margins maintained and overall expenses lower.
- The Aussie dollar fell against the US dollar, pushing into the 73c level, as commodity prices continued to fall on concerns regarding the sustainability of China’s growth outlook.
Economics
- The RBA left the cash rate on hold at 1.5% as expected, mentioning they would like to see non-mining investment pick-up to help the economy transition whilst softening some of their rhetoric on concerns regarding the housing market in light of recent softer data.
- The US central bank chose to leave interest rates unchanged as expected. However, they made clear comments that they didn’t see anything on the horizon that would prevent them from raising rates again this year, which pushed the probability of June rate rise up to 90%.
- US 1st quarter economic growth came in below expectations, with markets paying more attention to strengthening headline inflation data and rising wage pressure. However, the inflation measure the US central bank focuses on actually fell to a 12 month low, showing deflationary forces are still present.
- In European economic news, UK and French 1st quarter economic growth figures came in below market expectations, whilst Eurozone inflation remains below the European Central Bank’s 2% target thus removing some pressure for the Bank to start tapering its stimulus program.
Politics
- US local politics was back on the agenda this week, with the government budget’s debt ceiling and the adjusted healthcare reform bill on the table. Congress provided breathing space on the debt ceiling issue (end of September) whilst only just passing (4 votes) the amended healthcare bill. The bill will now go before the Senate, where it will be much more difficult to get through.
- President Trump was back in the headlines, again confusing the markets (maybe even himself). He wants to deregulate US banks but also wants to break them up at the same time……sort of competing efforts. He also indicated he’d be willing to meet with the North Korean leader, against the recommendations of his advisers, to avert military confrontation. Now that would be an interesting meeting!
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