23 Sep 2016
Markets
- Equity markets were boosted by central bank action this week, with the US holding rates steady and Japan implementing additional stimulus measures.
- In local stock news, Macquarie Group provided an outlook update which the market liked. Operating income was up 9% on last year’s numbers and earnings per share were up over 20% over the same period.
- Sydney Airport international traffic growth in August was up 7.6% whilst year to date growth was at 9.5%. The growth was driven by increase in flight services and general demand. Inbound growth was strongest from China, USA, Korea, Japan, and India.
- TPG Telecom shares fell sharply after the company issued earnings guidance below market expectations and increased costs for the coming financial year. The impact of the NBN is hitting home in relation to the reduced margin they will be able to make from each customer. They will either need to cut costs further or take on a lot more new customers. Tough either way.
- An analysis completed by UBS shows that BHP and RIO’s earnings estimates would be 41% and 10% higher, respectively, if current spot prices are used. The market generally discounts earning estimates based on their prediction of future spot prices. Interesting to see who will be proven right over the longer term.
- OPEC’s (the oil producing nation’s cartel) general secretary said that the cartel were likely to reach consensus on a one year production freeze agreement in an attempt to rebalance the oil market. Russia, whilst not a member, has also been included in this.
Economics
- The RBA’s September meeting minutes show that the bank is in no rush to cut rates again this year – something we agree with unless data drastically gets worse. But they also indicated they were less concerned with risks in the housing market (a mistake from our perspective, given east coast prices), which implies there is less barriers to further cuts next year.
- The US central bank decided to keep interest rates unchanged, with 3 members dissenting (advocating a rate rise). The Chairwoman advised she was happy with the health of the economy, but didn’t think a rate increase was warranted based on current data. This leaves December as the last meeting they can technically raise rates for this year. We think a rate rise will occur.
- The Japanese central bank fired off another piece of stimulus whilst leaving its main interest rates unchanged. The bank introduced an interest rate target for 10 year government bonds, committing to keep them around 0%, meaning it will do whatever it takes to keep them there.
- US housing data softened in August, coming in below market expectations, with both housing starts and building permits missing consensus. Both sets of numbers were still very strong.
- China reported new home prices up 9.2% on the same time last year, which compares to a near 8% rise in July. They saw price rises in 62 cities versus 58 in July.
Politics
- There were hints and headlines of a leak that UK PM Theresa May will invoke Article 50 (starts the process to exit the EU) in January or no later than February. There’s never a good time for this, considering we have both French and German national elections next year.
Deutsche Bank confirmed that the US government wants it to pay US$14bn to settle an investigation into its selling of mortgage securities in the lead up to the GFC. The bank has indicated that it has no intention of settling claims anywhere near that number. Market expectations were for a number between US$2-5bn.
