27 Jan 2017
Equity markets power ahead on Trump's first week in office
Markets
- Equity markets pushed higher as investor optimism (hope) regarding higher company earnings ahead picked up yet again.
- The Australian government successfully completed their largest ever bond issue of $9.3bn. The offer was met with strong demand with more than $15bn worth of bids submitted.
- In local stock news, it’s becoming increasingly unlikely that Sydney Airport will exercise its option to develop a 2nd Sydney airport at Badgerys Creek. On rating agency S&P’s calculations, without additional government funding for the project, the investment case just doesn’t stack up.
- Brambles stock price fell after the company reported weaker 1st half numbers than the market expected, which might put the company’s full year guidance at risk. The company cited lower revenue as a result of lower pallet use in the US.
- Rio Tinto has agreed to sell Coal & Allied to Yancoal (the Chinese) for US$2.45bn, subject to regulatory approval. After completion of the sale, Rio will be entitled to a quarterly royalty and will be able to reduce its net gearing to below 20%.
- The latest OPEC oil production figures are down significantly as producers began to meet their committed cuts as part of the agreement reached last year. Current figures show 80% compliance (ie. sticking to the agreement) by OPEC members, which is much higher than the market expected.
Economics
- Australian employment was marginally stronger than expectations in December, rising by 13,500 jobs. Pleasingly, most of these were full time jobs. However, the unemployment rate still rose due to higher participation (people actively seeking work) this month.
- Australia’s December quarter inflation came in below market expectations, rising 0.5% over the quarter and 1.5% on the same time last year. Annual inflation remains well below the RBA’s 2-3% target band.
- Australian housing market sentiment was steady in the final quarter of 2016 as more positive expectations for house price growth were offset by slightly weaker expectations for rent growth. Sentiment in NSW and Victoria stood well clear of the rest of the country.
- Housing commencements in the September quarter dropped to their lowest level since 2014, whilst recent approvals also trended lower. Developer caution and tighter credit requirements are taking their toll.
- China December quarter economic growth came in better than expected, rising 6.8% on the same time last year. However, the activity indicators were mixed with industrial production and fixed asset investment both down, whilst retail sales and credit growth were up.
Politics
- Donald Trump was inaugurated as the 45th President of the United States. His first major strokes of the pen included the withdrawal from the Transpacific Trade Partnership (at the detriment of Japan and Australia, and the US in the longer term), the repeal of Obamacare (Affordable Care Act) and a halt to regulation which stops federal agencies from issuing any new regulations.
- President Trump’s address at the ceremony didn’t provide much inspiration, with a continuation of nationalistic and protectionist rhetoric, which would have Asian and emerging market countries concerned. He followed this up post the inauguration by confirming that the wall will be built and with tighter restrictions on who can enter the country.
- The UK Supreme Court ruled by majority that an act of parliament will be required in order for the government to trigger Article 50 (ie. official notice to the EU of their intention to leave). Once formally trigged, the UK has 2 years to fully exit (negotiate their way out of) the EU.
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