24 Feb 2017
Australian household debt hits all-time highs
Markets
- Company reporting season is now well progressed with US company earnings surprising on the up whilst Australian company earnings have largely disappointed.
- In takeover news, global consumer products giant Unilever has rejected a US$143bn takeover bid by Kraft Heinz. A combination of the two multi-national firms would be third largest takeover in history. As we’ve stated previously, expect more large M&A deals over this year and next.
- In local stock news, ANZ reported a relatively strong first quarter result against expectations of a much tougher result. Cash profit was up 31% as the bank upgraded their outlook for bad and doubtful debt charges.
- BHP reported a strong 1st half result with their earnings margin rebounding to 53% on higher commodity prices and lower costs. Net profit after tax and earnings beat market expectations, whilst net debt fell further than expected.
- Brambles have “clarified” exactly what caused them to miss previous guidance and downgrade guidance for this year. After previously stating that their US business had suffered from inventory de-stocking (temporary effect), they cleared the air by stating it had suffered from increased competition instead. A very different narrative. Transition to the new CEO maybe not be as smooth as everyone expected.
- Woolworths’ share priced rallied as investors were impressed by same store supermarket sales rising at the fastest pace in more than 2 years. However, group earnings and supermarket earnings were both significantly lower than the same time last year, given the big spend required to bring down prices.
- Debate continues as to whether the recent highs in the iron price to levels not seen since 2014 are sustainable. Chinese stockpiles are increasing at the same time prices increase, which is unusual. Some traders are hopeful that infrastructure spending will carry the market through for the rest of the year.
Economics
- Australian household debt has risen to 187% of income, an all-time high, and at a time when wage growth is at an all-time low and labour market conditions are soft. Fair to say an increase in interest rates would be problematic, not that we’re any closer to a rate rise at present.
- Sunday penalty rates will be cut for employees in the hospitality, retail, and fast food sectors, the Fair Work Commission announced, but not to Saturday levels as originally thought. The move is likely to lead to increased business trading hours and an increase in the level and range of services offered on Sundays.
- Strong US economic data has helped lift the chances of US central bank rate hike in March to 40%. The US central bank has previously guided for 3-4 rate hikes this year, and indicated this week that a hike was likely fairly soon.
Politics
- President Trump’s timelines are being questioned (hardly surprising) as he announced that a proposed replacement to Obamacare (health act) would come in March before any proposals on tax reform. Just last week he indicated that his tax proposal would be before Congress by the end of February.
- A French opinion poll showed an increase in first round support for France’s anti-euro candidate Marine Le Pen. The poll also suggested that she would lose in the second round, but that her opponent’s lead has halved in less than 2 weeks.
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