30 Jun 2017
European Central Bank president put a rocket under the euro and pushed equity markets lower with rhetoric that the bank might start winding down its stimulus in response to accelerating growth in Europe. The comments were the first direct indication from the bank of less stimulus going forward.
Markets
- The local equity market finished up for the week whilst global markets were mixed, with Asia up, US tech down, and Europe down, following comments made by the European central bank president.
- Two failing banks in Italy have been acquired by a larger competitor for 1 EUR. The news comes after the EU banking regulator issued the Italian government with analysis that both banks would eventually fail. The good assets flow to the acquirer whilst the government (taxpayer) is left with the bad assets. Bond holders and depositors have been spared.
- In local news, the South Australian government sent shivers through investment markets, reaching as far as London, on news that it will introduce a state-based bank tax. Taxing corporate entities to make up for years of state budget mismanagement is never a good idea. The Federal Government should never have set the precedent in the first place.
- CSL continues to win, this time announcing that the US Food and Drug Administration has approved its one of a kind treatment for a rare, genetic, and potentially life threatening condition. Investors rewarded the company.
- The Commonwealth Bank of Australia is the latest bank to increase rates for interest only borrowers (both investors and owner occupiers in this case). Rates will be increased by 0.30%, taking interest only rates for owner occupiers to 5.77% and 6.24% for investors. These moves will boost margins and slow credit growth, keeping both shareholders and the regulator happy.
- Rio Tinto shareholders have backed the sale of the company’s NSW coal operations to China’s Yancoal for $3.5bn. The sale saw a bidding war erupt between Yancoal and Glencore. At the same time, Rio continues to pay down debt early, in order to further improve their balance sheet.
- Oil prices pushed higher this week, reversing some of the losses seen over the last month or so.
- The Aussie dollar pushed higher to 77c against the US dollar. The move was largely the result of the US dollar falling.
Economics
- Australian new home sales rose in May, the 2nd consecutive month of improved housing activity. Strong gains were seen in NSW and Queensland, with detached sales up and unit sales down. The report showed contractions in new home sales in SA, WA, and Victoria.
- US new home sales have come in above expectations for the month of May. Strength in the US housing market continues. Positive for the economy and for household formation.
- European Central Bank president put a rocket under the euro and pushed equity markets lower with rhetoric that the bank might start winding down its stimulus in response to accelerating growth in Europe. The comments were the first direct indication from the bank of less stimulus going forward.
Politics
- British PM Theresa May faces her first test since her party struck a deal with Northern Ireland’s DUP to form government. Parliament will vote on May’s legislative program in a crucial test of whether she and her Conservative government can survive. The coalition with the DUP gives her a slim 2 seat majority.
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