16 Feb 2018
U.S inflation data fails to spook markets
Markets
- Equity markets recovered this week, taking the US inflation numbers in their stride as the numbers of buyers outweighed sellers.
- In local stock news, National Australia Bank reported a reasonable 1stquarter result, which was assisted by lower than expected bad debts. In contrast, their net interest margin fell whilst expenses were also higher (in line with wage increases).
- Retailer JB Hi-Fi’s 1st half profit rose by 37% following a stronger than expected Christmas sales period. However, the company warned that it expects tougher conditions in the 2nd half as it focuses on sales and market share, at the expense of margins. Competitive pressures rising.
- Building materials maker Boral reported a reasonable 1st half result with net profit up 13%. The company doubled its US presence last year through acquisition, which resulted in $18m of savings in the 1st half. Closer to home, increased infrastructure and non-residential activity boosted performance.
- Woodside Petroleum announced it is acquiring Exxon Mobil’s 50% interest in Scarborough to lift the company’s interest to 75%. A $2.5bn rights issue will help fund the acquisition. The full year result came in as per market expectations.
- CSL produced a strong half year result with group revenue, earnings, and margins all coming in above expectations. The company reported a 31% increase in earnings and boosted its full year profit guidance.
- The US oil rig count continued to rise, assisted by a heightened oil price, controlled supply, and expectations of rising demand in light of the global economic recovery. The Russians appear to be angling for a supply increase, whilst the US overtook the Saudi’s to become the 2nd largest global producer.
Economics
- Australian business conditions started the year close to a record high and sentiment rebounded strongly in January led by the construction and mining industries.
- The much-anticipated US inflation reading came in above expectations, with the year on year rise unchanged at 1.8%. Inflation is rising, but the underlying components and other related data still show that runaway inflation is unlikely from here. Less pressure on the US Fed.
- UK core inflation printed at 2.7%, which is its joint highest level since 2011. With inflation at that level, at least two Bank of England rate rises are expected this year.
Politics
- The banking royal commission began this week with an opening address from the commissioner. Some of the banks have risked the wrath of the commissioner by being late with their submissions. Hearings start in a month’s time.
- President Trump unveiled his 2nd budget, plunging the budget balance into even higher deficits. His proposal includes $200bn (over 10 years) for infrastructure spending (a drop in the ocean), more than $23bn for border security (aka The Wall), and $716bn for military programs.
- An arm of the Chinese government encouraged major shareholders of domestically listed firms to increase their holdings, after Chinese stocks sold off last week in the equity market pullback. The call to action was aimed at stabilising the market and supporting local retail investors.
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