17 Feb 2017
Markets rally on potential US corporate tax reform
Markets
- Equity markets globally finished higher this week, buoyed by President Trump’s comments regarding US corporate tax reform.
- In local stock news, Wesfarmers reported strong underlying earnings growth, with earnings up 15% on the back of standout results from Bunnings, Kmart, and Officeworks (being shopped around for potential sale).
- Telstra has seen its first half profit fall by 14%, hit by the trifecta of competition, regulation, and ongoing restructuring. Numbers came in well below the company’s previous guidance, thus catching the market by surprise, even as their customer base continues to grow.
- Sydney Airport has indicated that it is hoping to meet the government’s timetable to decide whether to take up its right to develop the $5 billion Badgerys Creek airport. The company reported a solid set of results, with full year earnings up over 10% and a healthy dividend increase.
- CSL released strong half year results with net profit up 12% and earnings up 14% on headline numbers. After stripping out one-offs, net profit was up 36% and earnings per share up 39%.
- Medibank Private received approval from the Government to increase its premiums by an average of 4.6%, the lowest rise in 15 years for the company. The Government has finally realised that 7-10% increases whilst inflation is below 2% and wages growth even lower doesn’t make too much sense.
- The Aussie dollar pushed uncomfortably higher this week nearing 78c to the US dollar. A combination of rising commodity prices (iron ore back above $90) and the RBA’s recent optimistic outlook on the economy have helped. The RBA won’t be happy with the rise given it’s trying not to cut rates further.
Economics
- Australian employment data come in better than expected, with the unemployment rate falling on rising employment and falling participation. The full time / part time split continue to diverge in the wrong direction (ie. more part time than full time).
- A key Australian business survey showed conditions had improved considerably whilst confidence also rose, with both now above their long term averages. Seasonality might be the cause for the strong numbers. Time will tell.
- Australian consumer confidence rose in February to the highest level since May 2016. In contrast, US consumer confidence fell, but is still well above levels seen pre-election.
- The US central bank Chair Janet Yellen confirmed what we already know, that interest rates would gradually rise. However, her semi-annual testimony before the Senate seem to leave open the chances of a March rate rise. This caught the market a little by surprise.
- The European Commission’s winter outlook is cautiously optimistic, and for the first time in 10 years, the EU has forecast positive growth for all EU member states for the next 3 years.
Politics
- US President Trump’s comments on tax reform continue to push the US equity market higher. He indicated that the goal of cutting the corporate tax rate was moving ahead of schedule with expectations that his tax plan will be with Congress before the end of the month.
- President Trump lost one of his first hires with National Security Adviser Michael Flynn forced to resign as it emerged he had been communicating with the Russian government, on behalf of the US government, before he even had the job, potentially putting himself at risk of blackmail and countering his initial account of the interactions that took place.
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