16 Jun 2017
Markets mixed following US rate rise
Markets
- Equity markets were mixed this week with the local market up, US mostly flat, and with Europe and Asia (ex-Japan) down.
- CSL made its first acquisition in China, which will give the company local access to its fastest growing market for blood products. The outlay was $465m for an initial 80% stake with a further investment of $100m expected over the next 5 years. Investors liked the move.
- Channel Ten has been pushed into voluntary administration after the company’s largest shareholders decided to stop supporting the company going forward. Deep cost cuts and renegotiation of the steep prices that pay for US TV shows will be required if the network is to survive.
- The Aussie dollar pushed a little higher buoyed by the bumper Australian employment numbers.
Economics
- Australian employment numbers surprised on the up in May, marking the 3rd month of strong job creation. Importantly, the rise in May was driven by full-time jobs. The unemployment rate hit a 4 year low of 5.5%. However, there still remains plenty of slack in the labour market.
- Australian business conditions have eased slightly in May, but remain above their long term averages. However, the confidence index fell sharply, but remains a little higher than long term averages. Conditions will always look good whilst rates are low; confidence is the key factor.
- Australian consumer confidence fell again in May as households remain very cautious about the future. Key to the survey reading was a large fall in confidence in future economic conditions, a function of highly indebted households with no wages growth on the horizon.
- The US central bank raised interest rates by 0.25% to between 1% and 1.25%, as fully expected by markets. Central bank officials indicated that there would likely be one more rate rise this year and reiterated that they would look to reign in their asset buying problem (QE) this year. No specific details were provided.
- US inflation continues to remain soft in light of full employment and upward pressure on wages. May inflation data showed that the weakness is more widespread than the 1 or 2 one-off items we saw in April. This data has lowered the market’s expectations of a US rate rise in September and December.
Politics
- British PM Theresa May embarrassingly announced she would form a government alliance with Northern Ireland’s Democratic Unionist Party after failing to secure a majority in the election. The key here will be whether the approach to Brexit will continue along the hard lines or potentially change course to a softer approach. Either way, the election result has diminished Britain’s negotiating power with European Union and brought May’s leadership into question.
The political party of French President Macron won a sweeping 1st round victory in the French parliamentary elections, in a vote marked by low voter turnout and another solid rejection of both the traditional left and right parties. Macron’s centrist party may now end up with about 70% of the seats in parliament.
