25 Aug 2017
Australian company reporting season underwhelms
Markets
• Local and global equity markets finished the week higher.
• Investors eagerly awaited any new or changing rhetoric from central bankers as the annual Jackson Hole summit got underway.
• US company reporting season for the 500 largest companies has completed with 73% exceeding earnings estimates and more than 68% have topped revenue expectations. Both numbers were ahead of historical averages.
• Australian company reporting season has been underwhelming as we passed the half way point this week. Fair to say the market will be downgrading next financial year earnings forecasts. Local market remains in no-man’s land.
• In local stock news, Brambles full year result was broadly in line with market expectations, but the market wanted more certainty from the company on their outlook. Earnings and net profit were down a little, but the balance sheet remains strong as does free cash flow.
• BHP announced a solid full year result with earnings in line with expectations, with an improving trend, and plenty of free cash flow allowing them to pay a higher dividend than their minimum payout ratio. The big news was the re-classification of its US onshore oil & gas assets as non-core and that they were actively pursuing exit options.
• Sydney Airport has reported that international passengers grew to 7.7m in the 6 months to June 30, an increase of 7% on the same period last year. However, domestic demand was subdued, linked to weaker local economic conditions. Profit after tax was up over 4%, whilst dividend guidance was up 11% on the same time last year.
• Woolworths reported a mixed result, with earnings growth below expectations, but continued positive momentum in sales growth in their core Australian food business. Drinks, NZ, and Hotels divisions did well, whilst Big W performed poorly.
• Commodity prices pushed higher this week with the focus on iron ore. Global economic growth is here, though a fair chunk of the recent moves are a function of stabilising growth in China. Good for commodity country exporters (Australia) but bad news for their currencies (ie. higher).
Economics
• Credit rating agency Fitch put the US Congress on notice regarding the debt ceiling, make it clear their AAA rating would be in jeopardy if the government cannot reach a deal on time. The ceiling will be reached at the end of September.
• US consumer sentiment for August hit its highest level since January, with US households gaining in confidence, even in light of the dire political environment.
Politics
• The White House departure list continued to rise with President Trump’s strategist Stephen Bannon resigning. Further rumours are that Trump’s economic adviser, ex-Goldman boss Gary Cohn, might also resign given his outspoken comments on Twitter against the President.
• Also on the political agenda was the annual US / South Korean military exercises which began this week. No doubt North Korea will be watching closely and will most likely use the exercises as an excuse to “test” more missiles. The US also imposed further sanctions on them, this time targeting Chinese and Russian firms and individuals who support their weapons programs.
