18 Aug 2017
Markets unsettled as Trump continues to disappoint
Markets
• Equity markets finished mixed this week following a poor finish by the US stock market, which saw investors’ concerns rise after the terrorist attack in Spain and further concerns regarding Donald Trump’s presidency.
• Plenty of the larger Australian companies reported this week with results not matching elevated stock market valuations leading into reporting season.
• In local stock news, shares in Telstra fell sharply after the company shocked everyone with a much larger cut to their dividend than expected. Expectations were for a 2-5 cent cut whereas the company cut it by 9 cents and flagged other changes to their dividend policy. The change in policy was poorly communicated and telegraphed, and largely unnecessary.
• National Australia Bank posted a solid quarterly result, with cash earnings and revenue up on the same period last year and also up on the previous period.
• Commonwealth Bank of Australia CEO Ian Narev will retire by the end of the 2018 financial year. The news comes following the money-laundering scandal at the bank, which may have broader implications (including in foreign jurisdictions) than just at home.
• Domino’s full year result came in well below sky high market expectations and the company’s most recent guidance. Net profit and underlying earnings rose strongly on last year’s numbers, however, the firm has scaled back sales growth expectations going forward. All is not well. The share price fell sharply.
• Wesfarmers reported a solid full year result, with underlying earnings and net profit rising by 22%. Strong results came from Bunnings, Kmart, Officeworks, and the Resources division. The final dividend came in above expectations.
Economics
• Minutes from the Reserve Bank of Australia’s August meeting showed the board remains concerned about house price growth (in terms of rate cuts) and the level of housing debt (in terms of rate rises). The Bank will likely now be on hold until the 2nd half of 2018 at the earliest.
• US core inflation (excluding food and energy) came in at 1.7%, which was in line with estimates. The figure remains well below the central bank’s target and the trend in the rate continues to be negative.
• US retail sales rose in July, coming in ahead of market expectations. A key manufacturing index showed its highest reading in 3 years.
• US central bank minutes appeared to be more dovish than the market expected, with officials focussing their attention on surprisingly low inflation readings and with most wanting to delay the unveiling of details on the bank’s asset portfolio unwinding.
• Chinese economic data for July came in a little softer than expected, with retail sales up over 10%, industrial production up over 6%, and fixed asset investment up 8.3%. All reasonably strong numbers nevertheless.
Politics
• US President Donald Trump raised the stakes with North Korea indicating he may need to up his rhetoric to attack if the US feels threatened. China fired back, warning they would intervene if the US were to strike first. The US secretary of defence and the secretary of the state confirmed that they were seeking diplomatic solutions to denuclearise North Korea.
• Trump’s presidency came under further pressure after he failed to denounce the racist events that resulted in a death in Charlottesville. Senior people that work for him have threatened to quit. Two business advisory councils the President had previously set up with company CEOs have been disbanded as the CEOs began to quit following Trump’s misstep
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