13 Feb 2017
Equity markets buoyed by solid company earnings results
Markets
- Equity markets globally pushed higher this week, as investors responded positively to company earnings results and President Trump’s plans to begin scaling back US financial sector regulation.
- More than half of the US equity market has now reported 4th quarter results, with earnings and revenue growth coming in at 6.5% and 4.2% respectively. Solid numbers, but low relative to current US equity valuations.
- In local stock news, National Australia Bank reported a small fall in cash earnings for the first quarter, despite a large reduction in bad and doubtful debts. Revenue was up slightly, whilst the all-important net interest margin was flat.
- Macquarie Group left its earnings guidance for flat profits in 2017 unchanged. Mixed conditions across the group saw management describe the December quarter as satisfactory.
- Carsales.com has posted a 5% increase in underlying first half profit on the back of strong domestic growth. Earnings were up 2%. Headline profit was hit by a write-down to their Asian investment, and their finance business took a hit. Private seller revenue surged 26%.
- Rio Tinto posted a reasonable full year result with earnings and underlying profit coming above market expectations. Their earnings margin increased strongly in the 2nd half, supported by the sharp rise in the iron ore price. The balance sheet now looks even healthier, which resulted in a super-sized final dividend and a share buy-back program for this year.
Economics
- The RBA left the cash rate unchanged at its February meeting as expected. No major change to rhetoric in the statement released. Rates likely to be on hold for most of this year.
- The RBA did give economic growth and inflation guidance in their statement, forecasting growth of 3% over the next 2 years and inflation back up within their 2-3% target. Economic growth guidance seems very optimistic for this year, so the bank must be expecting a pick-up in activity in 2018.
- Australian retail sales in December missed expectations, falling nationally, with dips in Victoria, NSW, and ACT. Falls in household goods retailing were partly offset by people buying more groceries, footwear and accessories, and spending at cafes and restaurants.
- Weekend property auction volumes are gathering momentum though not at the same pace as last year. Sydney has been relatively slow, but still cleared 78% of properties last weekend.
- Australian building approvals fell 1.2% in December and are down over 11% on the same time last year. Approval levels remain high relative to history, but show that the construction boom may be peaking.
- The US reported the biggest employment gain in four months with 227,000 new jobs in January, beating expectations. In contrast, the unemployment rate rose (more people looking for work) and wage growth was anaemic.
- The reserve bank of China raised inter-bank interest rates in a move aimed to control financial risk (curb borrowing), reduce the capital outflow pressure (currency leaving the country), and adjust policy in light of inflation pressures.
Politics
- France’s Marine Le Pen, populist candidate for the presidential election, officially announced her bid by unveiling her plans to exit the EU, amid a scandal surrounding another prominent candidate who has refused to withdraw from the race.
- German leader Angela Merkel’s support levels dropped to multi-year lows, whilst Greek concerns resurfaced as bailout targets appear even more unachievable and Germany saying the Greek bailout program will not continue without International Monetary Fund participation. The IMF is demanding greater austerity from Greece and debt forgiveness from creditors.
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