21 Jan 2019
Stocks higher on Chinese stimulus
Markets
- Local and global stock prices finished higher this week, spurred by Chinese stimulus and increasingly positive expectations of a US-China trade resolution.
- Analysts expect the largest 500 US companies’ earnings per share to grow 6-8% this year, compared with over 23% growth in 2018 which was boosted by corporate tax cuts and government stimulus. 4th quarter earnings are expected to grow at 14%.
- In local stock news, Wesfarmers expect net debt to reduce to $300m, from $3.6bn, following the receipt of proceeds from a number of transactions. The company guided for lower earnings from its department store division, highlighting the tough discretionary environment.
Economics
- Australian consumer confidence has taken a hit in January turning negative for the 1st time since November 2017. The slide in house prices, and concerns regarding the Australian economy and US-China trade have weighed on sentiment.
- Australians spent $26.12bn in retail sales in November, which came in above expectations.
- US inflation data printed in line with consensus expectations for December, down slightly from November, and up 1.9% on the same time last year. Core inflation (ex-food and energy) rose slightly for the month, and is up 2.2% on the year.
- Eurozone industrial production posted its biggest decline in almost 3 years in November, coming in below already negative estimates. Tariffs on trade continuing to hurt the export dependent region. Central bank policy to remain expansionary.
- Car sales have fallen in China for the first time in 20 years as consumption wanes on mounting concerns regarding the economy.
- China plans to set a lower economic growth target of around 6% in 2019 compared with last year’s 6.5% target. US tariffs and weakening domestic demand hitting home.
- China’s trade surplus has dropped over 16% from the year before, marking the country’s lowest surplus since 2013.
- China’s central bank injected a record US$83bn into the country’s financial system, with the country likely to commit further stimulus ahead.
Politics
- Brexit got a little messier as expected, with the UK parliament convincingly voting down the Brexit agreement with the EU. PM May’s party then survived a no-confidence vote by a slim margin. Options include a new agreement, a 2nd referendum, new elections, or a disorderly Brexit (ie. with no agreement).
- A Chinese government official hinted the country will strengthen monitoring of its economic situation and improve its reserve of economic policies. There was also news of potential tax cuts on a large scale to prop up the slowing economy. Stimulus is coming, the where and the quantum we don’t know yet.
- President Trump rejected a call from his own party for temporarily reopening shuttered US government agencies to encourage negotiations with Democrats over “the wall”.
- Republicans crossed the floor in US parliament to vote with the Democrats in blocking President Trump and his Treasury Department from lifting sanctions on 3 Russian companies linked to a Russian oligarch.
- President Trump predicted that Washington would reach a deal with China to end their trade war, saying Beijing wants to negotiate and that talks are going well.
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