1 Sep 2017
North Korean tensions rise as "all options are on the table"
Markets
• Local and global markets rebounded from jitters earlier in the week following the North Korean missile launch, which travelled over Japanese territory.
• Europe was the exception, finishing lower as the currency pushed higher.
• In local stock news, Santos reported a reasonably solid 1st half result, with earnings in line with market estimates and stronger cash conversion. Management appear to be pursuing the right initiatives finally. Pleasing to see cost reductions continuing.
• South32, the spun-off non-core assets of BHP, reported a strong full year result ahead of market estimates. Higher operating cash flow and lower capital expenditure boosted the company’s net cash positioning, allowing for a lift in the dividend and a buy-back program. However, the company guided for tougher conditions ahead.
• Qantas Airways full year result was in line with expectations, but the market took a liking to the positive outlook provided by the company and the reinstatement of the share buy-back program. Domestic and Loyalty divisions were the strongest, offsetting weaker international and Jetstar during the period.
• Ramsay Health Care met its full year guidance, but the stock price still fell sharply as the market made the all too common mistake of extrapolating past years’ high earnings growth into perpetuity. Revenue and earnings growth didn’t match the lofty multiples baked into the share price, and forward guidance is for strong earnings growth, but again was too low relative to the share price.
• Boral presented a reasonable annual result with revenue up around 2% and profit up about 22%. The CEO of the company expects Australia’s infrastructure boom to last for up to 10 years, with the company expecting 15% growth in the value of work they are doing on roads, highways, and bridges.
Economics
• Australia’s economic outlook received a boost with data showing that companies expect to ramp up their investment plans in the 2018 financial year, with an estimate of $102bn in new projects versus the June estimate of $85bn. Investment in non-mining industries has started to rebound.
• The much anticipated speeches from the US and European central bank presidents failed to provide any guidance on monetary policy.
• The European central bank president indicated that the bank’s ultra-easy monetary policy is working and the Eurozone’s economic recovery has taken hold, even though more time is needed to lift inflation to the bank’s 2% target.
• US economic growth rose at annualised rate of 3% in the 2nd quarter and US private sector job growth came in better than expected.
• A key US 20-city house price index showed solid gains in the June quarter, up nearly 6% on the same time last year.
• US consumer confidence strengthened in August, coming in just below a 16 year high. Stocks reacted positively to the news.
• Recent Chinese manufacturing data showed a pickup in growth and prices, suggesting the government’s efforts to curb financial risks have not yet come at the cost of the weaker growth.
Politics
• The North Korean’s tested a missile by firing it over Japanese land and airspace, rattling investors, and pushing the US closer to taking greater action. The North Koreans weren’t happy regarding the commencement of the South Korean / US war exercises. The US is considering their options, with President Trump commenting that all options are now on the table.
