19 May 2017
Real wages going backwards
Markets
- The US market broke through new highs again before investors finally began to understand that President Trump’s ability to deliver on promises is fleeting.
- The moves lower in the US equity market pushed all markets lower globally.
- In local stock news, Fairfax Media received a revised offer from a consortium of buyers which broadly equates to a similar trading multiple to that of REA (realestate.com), with the jewel in Fairfax’s crown being Domain. The company then received a slightly higher competing bid by another consortium.
- Explosives maker Orica has lifted 1st half profit 31% as underlying earnings stabilised. Management’s turnaround continues.
- Wesfarmers has indicated that an IPO of Officeworks at this point in time would not realise appropriate value for shareholders. Their strategic review of the business continues. Officeworks has more than doubled its earnings and return on capital since 2009.
- Six of Canada’s largest banks have had their credit ratings downgraded by Moody’s on concern that over-indebted consumers and high housing prices have left lenders vulnerable to potential losses on assets. The downgrade has pushed up the bank’s funding costs. Reasons for the downgrade sound too close to home.
- The Chinese bond market exhibited a new sign of stress with the yield on the 5yr government bond breaking above the 10yr yield for the first time on record. The move could reflect pessimism regarding long term growth prospects in light of the government’s recent efforts to reduce financial risk.
- Oil prices pushed higher this week following news that both Saudi Arabia and Russia favoured a 9 month extension on the production cut agreement that holds back around 1.8m barrels per day from the market. Look for swing US shale operators to lift production on any oil price increases.
Economics
- The optimistic tone in the minutes of the RBA’s May policy meeting may be short-lived with recent economic data softening. Hardly surprising. A highly indebted consumer, with no wages growth, is not healthy.
- Annual real wages (net of inflation) declined for the first time in 3 years. Private sector wage growth remained at its record low of 1.8% whilst public sector wages rose slightly.
- Australian April employment data surprised on the up with a 37,000 increase, which follows last month’s 60,000 jump. The majority of the gains came from part-time jobs. The rise saw the unemployment rate fall back down to 5.7%.
- US inflation data has exhibited some weakness, dropping below 2% for the first time since October 2015. Declines were seen across most of the underlying components. The US Fed is still on track for a June rate rise, but definitely something to ponder.
- A sleuth of Chinese economic data was released, with broader results underwhelming market expectations. Though absolute numbers remained reasonably strong.
Politics
- President Trump is again under investigation, this time for his dealings with the FBI and interactions with Russian government officials. If proven, he may be impeached.
- German Prime Minister Merkel and newly elected French President Macron have agreed to draw a roadmap to deeper European Union integration. The meeting between the two followed Merkel’s party win in a key state election on the weekend.
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