28 Apr 2017
Stronger earnings and French election result push markets higher
Markets
- Global equity markets rallied following the 1st round of the French Presidential elections, with market-preferred Macron leading the way. Stronger reported corporate earnings also helped.
- US company quarterly reporting thus far appears somewhat supportive of heightened US equity market valuations with nearly 80% of companies exceeding their previous earnings estimates.
- The technology heavy NASDAQ stock index in the US hit all-time highs, breaking through highs set in the dotcom bubble in 2000, assisted by strong corporate earnings and the possibility of corporate tax cuts.
- In local stock news, Coca-Cola Amatil provided a poor trading update citing higher volume and price pressure due to competition and consumer trends towards healthier eating. Also fair to say that consumers have become accustomed to regular heavy discounting of their products by grocery retailers.
- Rio Tinto and BHP Billiton’s March quarter production results were weaker than market expectations, driven by poor weather and labour strikes.
- Wesfarmers 3rd quarter sales were largely in line with market expectations. However, the result showed that food & liquor sales growth momentum is slowing, no doubt a function of Woolworth’s turnaround strategy. Officeworks and Bunnings continued to do well, whilst Kmart was weaker than expected and Target continues to struggle.
- Stockland’s solid 3rd quarter performance will ensure it meets its 2017 guidance for growth and distributions, with net deposits on new homes will above levels on the same time last year.
Economics
- Australian headline inflation jumped in the March quarter, pushing the annual rate up into the RBA’s target band of 2-3%. Core inflation, the preferred measure, which strips out volatile items, rose slightly, but remains below the target band. The data disappointed putting downward pressure on the Aussie dollar.
- The US housing market continues to strengthen with home prices and new homes sales both up nearly 6% in February.
- European central bank president Draghi indicated that inflation was not strong enough to consider reductions in its stimulus program even though the euro-area economic recovery is more solid and broad than it’s been for some time.
Politics
- The 1st round of the French Presidential election went as planned with Emmanuel Macron and Marie Le Pen finishing with the highest votes of all the candidates. 2nd round of voting is next week with Macron favourite in the polls. Neither has much parliamentary support, so parliamentary make-up will be the key following either candidate winning.
- President Trump has briefed all senators of his plans regarding North Korea, whilst being in regular contact with China, Japan, and South Korea. Fair to say he’s probably been given the go-ahead if he needs to act, but interesting dynamics and potential outcomes still at play.
- President Trump released his tax plan via a one-page release and brief press conference, with little to no detail on the how. Proposals included reducing the corporate tax rate from 35% to 15%, reduction of the top individual tax rate to 35%, and cutting the number of individual tax brackets from 7 to 3. The measures have the potential to cost circa US$5-7 trillion over 10 years, pushing national debt even higher.
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