13 Jul 2018
Markets choppy as trade wars escalate
Markets
- A choppy week in equity markets with the local market falling but most global markets finishing higher.
- The much anticipated US corporate earnings season begins tomorrow (Friday US time). The US market is trading expensively off the back of the bumper March earnings season, so this earnings season is incredibly important to justify those valuations.
- Recent trading in bond markets shows there’s a more than 50% chance of 4 US rate rises this year.
- In local stock news, reports indicated that BP has submitted an offer north of US$10bn to acquire BHP’s shale assets. BHP slated the assets for sale some time ago, with new management deciding they were non-core assets.
- Stockland has confirmed earnings growth guidance at the top end of the previous range. Management also confirmed that it has completed 6,400 residential settlements in the 2018 financial year. Importantly, 95% of those settlements were for single family dwellings (not apartments) and 75% of buyers are owner-occupiers.
- Scentre Group has brought a 50% stake in Westfield Eastgardens from the Saunders family. The deal was struck on a pretty full valuation, however, Scentre Group manages the asset so should know its potential better than most.
- The oil price fell this week on concerns regarding the impact of trade wars and some data which showed rising supplies and inventories.
Economics
- A key speech by the Australian banking regulator seem to indicate that he’s happy with where improved bank lending standards currently are and doesn’t see the need for further tightening. There appeared to be less concern at the overall level of housing credit growth.
- The US added 213,000 jobs last month coming in ahead of market expectations. The unemployment rate rose from an 18 year low to 4%, whilst average hourly earnings rose slightly. No pressure on the Fed here.
- US headline inflation edged higher in June to push the annualised increase to 2.9%, which is the biggest gain since February 2012. Core inflation (less impacted by energy prices) rose to 2.3%. A little pressure on the Fed here, but probably not enough yet to lock in 4 rate rises for this year.
- A key German economic sentiment index fell to its lowest level in nearly 6 years. Broader European issues and trade war escalation taking their toll.
- Eurozone house prices rose at the fastest pace in 11 years during the 1st quarter of this year, up 4.5% versus the same time a year earlier.
Politics
- The US and China went ahead with their reciprocal tariffs on $46bn worth of each other’s imports. The Chinese accused the White House of triggering the largest scale trade war. President Trump has warned that the US may target more than US$500bn worth of Chinese goods.
- UK Prime Minister May secured a “soft” Brexit much to the dismay of pro-Brexit Conservative members of parliament, which then saw two senior members of the PM’s ministry resign their posts in protest.
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