17 Aug 2018
Markets mixed as fears of Turkey contagion rise
Markets
- Equity markets were mixed this week as contagion fears gripped some investors as Turkey remained in the headlines.
- In local stock news, James Hardie reported a reasonable 1st quarter result with Europe and Asia performing strongly, whilst the US was a little softer than market expectations with lower volumes and higher freight and material costs.
- AGL Energy’s full year result beat market expectations, but the company guided for a softer year ahead. The company has $1.7bn in funding capacity to support its capital management plans. A share buy-back seems likely from here.
- JB Hi-Fi’s full year profit jumped 35% whilst total sales lifted 22%, both bettering market expectations. The company downgraded guidance on The Good Guys citing increasing competition, but indicated they had made strong progress on positioning the business for future growth.
- CSL Ltd posted a near 30% rise in annual net profit with earnings 2% ahead of the company’s upgrade guidance. Management guided for earnings growth ahead of 10-14%. All divisions performed very strongly, whilst management guided for continued strong re-investment in the business ahead.
- Wesfarmers delivered underlying net profit growth of 5.2%, with the Department Stores division reporting a near 22% earnings uplift thanks to a turnaround in Target. Coles’ sales momentum continued, however, Bunnings suffered a sharp slowdown in sales with management guiding to 5% sales growth in the 1st half.
- Telstra reported results in line with the company’s recently updated guidance. A final dividend of 11c per share was declared, with no dividend guidance given. The business saw improvements in mobile and data divisions, whilst the balance sheet remains healthy.
- The number of active US oil rigs rose to their highest count since March 2015. The International Energy Agency raised its forecast for global oil demand growth by 110,000 barrels per day, whilst global supply rose by 300,000 barrels per day last month.
Economic
- The Australian unemployment rate surprisingly fell to 5.3% in July, with full time jobs increasing whilst the number of part-time jobs fell. The participation rate also fell, supporting the lower unemployment number. Plenty of slack remains.
- A key US small business survey showed business optimism surging to its 2nd highest level in history, coming in just under the 1983 peak. The most important issue flagged by small businesses were concerns about the quality of labour.
- US inflation rose 0.2% in July, in line with expectations, to leave the annualised pace unchanged at 2.9%. The core measure of inflation (ex-food and energy) rose to 2.4%. Nothing for the US central to be overly concerned about here given current pace.
- UK economic growth accelerated in the 2nd quarter, increasing at annualised pace of 1.5%, versus a 0.9% reading in the 1st quarter.
- The UK unemployment rate fell to 4% in the June quarter, the lowest reading since February 1975. Wages were up 2.7% in the quarter.
- Mixed economic data out of China this week with industrial output up 6% in July, private sector fixed asset investment up 8.8% in the 1st half, and real estate investment rising 13.2% (fastest pace since October 2016). In contrast, fixed asset investment growth slowed to its weakest level on record whilst retail sales growth also missed expectations.
Politics
- President Trump took on the Turkish president this week demanding the return of an American pastor being held by Turkish authorities and doubling existing steel and aluminium tariffs on imports from Turkey.
- The Coalition and Labor politicians were united in condemning Australian Senator Fraser Anning’s “white Australia / final solution” speech. The speech will cost the Katter’s Australian party union donors and likely see key Labor preferences lost. Without the large boost to migration over the last 10-20 years, Australia’s economy would’ve performed much more poorly.
