28 Sep 2018
US Fed telegraphs more rate rises to come
Markets
- Equity markets finished higher this week as investors took comfort in the US central bank maintaining its well telegraphed policy changes.
- In local stock news, Solomon Lew’s Premier Investments reported a 20% fall in full year profit after writing down the value of some of its brands (Just Group and Jay Jays) due to significant competition from foreign retailers and structural changes impacting the apparel industry. Minus the write-downs, the underlying result was strong.
- AGL has no plans to change its strategy including the 2022 closure of the Liddell coal fired power station in NSW and plans to appoint a new CEO by the end of the year. The company reaffirmed that the closure of Liddell is a function of prudent and pragmatic risk management.
- Oil prices hit a 4 year high as supply has waned whilst demand has increased. OPEC clearly not fussed on lifting supply, whilst President Trump has called on OPEC to get prices down (ie. lift supply) as higher oil prices are starting to hit home for the US. The US’s sanctions on Iran haven’t helped supply.
Economic
- The US central bank raised interest rates as expected, whilst largely reaffirming its policy outlook for the coming years in light of steady economic growth and a strong job market. A December rate rise is now highly likely, along with 2-3 rate rises next year. The bank remains unconcerned about inflation at this stage.
- US consumer confidence rose in September, against economist expectations, bringing it closer to levels last seen in 2000, owing to ongoing strength in the labour market and the overall economy.
- Global ratings agency S&P revised its Australian outlook to stable, from negative, removing the risk of downgrade to Australia’s AAA credit rating. No doubt assisted by the Federal budget likely moving back into surplus much sooner than expected.
Politics
- Markets now increasingly believe that any trade war will only involve the US and China, as the US looks to patch things over with other countries. Trade tensions have continued with China scrapping upcoming trade talks with the US and the Chinese vice-premier scrapping his visit to Washington.
- European Union leaders rejected Prime Minister May’s post-Brexit proposal with May now indicating that the UK must continue to prepare for a no-deal scenario. Interestingly, the British opposition labour party leader stated he would support a 2nd Brexit referendum vote if his party decided to pursue the move.
- President Trump was ridiculed and almost heckled during his address at the UN General Assembly, with clearly audible laughter from the dignitaries in the audience. Speaking the same way you do at one of your support rallies in regional America was never going to go down well.
