US dollar hits 13 year highs

25 Nov 2016

The US equity market hit all-time highs this week, as investors continue to react positively to the presidential election, with the expectation of economic growth and regulatory easing.
Facebook announced a mega buyback offer for $6bn in class A stock.
In local stock news, Myer shares have jumped after the company posted strong sales growth and reaffirmed its guidance. Same store sales for the October quarter outpaced David Jones for the first time in 2 years.
Boral expects to double the size of its US division with the $3.5bn purchase of the Utah based construction materials manufacturer Headwaters. The business has a major presence in lightweight building products. The acquisition is very large relative to Boral’s market value. $100m in synergies is expected.
Rio Tinto announced that it has committed to generate $5bn of additional free cashflow over the next 5 years from a productivity drive. This is in addition to the cash cost reduction target of $2bn across 2016 and 2017
The US dollar briefly hit 13 year highs this week after solid US economic indicators and the central bank’s minutes supported expectations for a rate rise in December. Further downward pressure for the Aussie dollar.

Australian construction work completed in the 3^rd quarter fell more than expected, down to the lowest level in 6 years. The fall was dominated by a further decline in major resource projects as well as weakness in other construction areas. This will impact economic growth.
The Reserve Bank of Australia’s Chief Economist Chris Kent spoke outlining their concerns with the labour market of late given the rise in part-time employment (at the expense of full-time) and the very low level of wages growth which remains at all-time lows.
The US central bank remains ready and willing to raise interest rates at their December meeting. Chairwoman Yellen noted that the presidential election hadn’t changed the central bank’s take on the economy.
US housing starts were surprisingly strong in October, rising to their highest level since August 2007. Building permits also rose, suggesting housing construction activity is improving.
European consumer confidence rose in November, coming in well above expectations, and reaching the highest level since December 2015.
The European Central Bank is considering postponing its decision on the future of its bond buying programme until early next year. Rising bond yields more recently have eased supply concerns.

Politics

Political news was about the Eurozone this week with polls showing Italian Prime Minister Renzi will lose the upcoming constitutional vote potentially leading to a collapse of the government and new general elections. German Chancellor Merkel committed to a 4^th term by announcing she will contest next year’s election. Whilst former French President Sarkozy conceded defeat in the race to contest next year’s elections. At this stage, the far right wing party of Marie Le Pen looks likely to win.
President-elect Donald Trump outlined plans for his first 100 days in office. Trade was in focus as he promised a day-one withdrawal from the Trans Pacific Partnership. No real mention of anything else.

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