28 Oct 2016
Inflation data gives the RBA more room to ease
Markets
- Equity markets fell all around this week with different factors at play.
- The local market fell as a result of some poor company reporting and profit taking by investors.
- The US market also saw some poor company reporting, whilst European markets fell on a re-run of banking sector concerns.
- In local stock news, National Australia Bank reported a reasonably solid full year result, helped by the 2nd half of the year with flat revenues, lower costs, and lower than expected bad and doubtful debts. Non-performing loans rose only slightly. A small cut to the dividend is likely next year.
- AMP Limited’s stock price came under heavy pressure as their life insurance business continues to see a large deterioration in market conditions. The company has entered into a reinsurance agreement with Munich Re for half of its annual premium income, with the deal releasing much needed capital at the cost of margins.
- Santos’ 3rd quarter production was flat whilst the company continues to push hard to drive costs lower. The company has also put in place hedging contracts to protect it from declining oil prices, but this will also cap their upside if oil prices spike.
- Wesfarmers reported a soft set of quarterly retail sales, with total sales only up a 1.3%. Coles was soft, Bunnings weaker but in line with expectations, and Target very poor as the repair continues. Kmart was the standout.
- Higher coal prices, a result of Chinese supply cuts, will help boost state and federal government budgets and the nation’s economic growth. Contracted hard coking coal prices are up more than 100% whilst Thermal coal prices are up circa 50%.
Economics
- Australian underlying inflation data came in weaker than expected, pushing the RBA’s preferred measure of annual inflation lower to 1.46%. The headline number was actually higher due to volatile items such as fruit prices (flood affected).
- In US data, consumer confidence fell in October whilst key manufacturing readings rose.
- Germany’s current account surplus (more money coming into the country than goes out) hit US$300bn or close to 8.5% of their economic growth. Their surplus is the largest globally and at levels which are in direct violation of EU rules. There’s a case for being fiscally responsible, but not at the expense of growing and improving your economy.
- Chinese new homes prices in 70 major cities are now 11.2% higher over the past year. In that same period, Beijing prices are up 28%, Shanghai prices are up 33%, and Shenzhen are 34% higher.
Politics
- Malcolm Turnbull’s popularity has sunk to a new low with a poll showing voter satisfaction now below that of Tony Abbott when he was toppled last year. The Prime Ministers’ standing as preferred PM also fell, but is still well clear of Bill Shorten.
- Reports show that US Presidential candidate Donald Trump now has three major voter suppression operations underway in order to discourage key Clinton demographics from voting. “Don’t vote” campaign alive and well if you can’t get the votes yourself.
