Pitcher Partners' wrap up of issues impacting the markets over the last week.
News in Review
Retail sales slipped 0.1% in March, falling well short of expectations of a 0.3% month-on-month increase. Retail sales have fallen in three out of the last four months, and the year-on-year growth has slowed to 2.1%, the slowest rate of growth in almost four years.
Building approvals for dwellings in March showed a 13.4% slide, seasonally adjusted, led by a 22.5% slump in apartment approvals, with a 4.3% drop in the more stable detached house sector. This decline was much steeper than analysts expected, with the consensus view being for a 4% fall overall.
The Consumer Price Index rose 0.2 per cent in April after March's 0.3 per cent decline, matching analyst expectations. The CPI showed rising prices for shelter, tobacco, energy and food, according to the Labor Department. Excluding the more volatile categories of food and fuel, the "core" index rose a more modest 0.1 per cent. On a yearly basis, signs of upward price pressures were more muted, with the CPI up just 2.2%, down from the 2.4 recorded in March. The 12-month gain in the core index was also 1.9 per cent, falling a tenth of below the Fed's two per cent target.
Retail sales rose 0.4% in April versus expectations of a 0.6% increase. Within this rise there was a drop of 0.2% for sales at department stores yet online retailers reported a rise of 1.4%.
Initial claims for state employment benefits dropped 2,000 to a seasonally adjusted 236,000 for the week. Economists polled by Reuters had forecast first-time application for jobless benefits rising to 245,000. Claims have now been below 300,000, a threshold associated with a healthy labour market, for a total of 114 straight weeks.
Britain’s manufacturing production fell by 0.6% in April, but the quarterly level increased by 0.3% when compared to the previous 3 month period.
The UK’s trade deficit widened by £5.7 Billion during the first quarter of 2017. The increased deficit was led by increases in imports predominately in machinery and transport equipment, oil and chemicals.
The German economy continued to grow in the first quarter of 2017 with gross domestic product (GDP) up 0.6% on the fourth quarter of 2016 after adjustment for price, seasonal and calendar variations.
Inflation rose quicker than expected in April with annual CPI coming in at 1.2% compared to March’s expansion of 0.9%. April’s CPI was above the forecast of 1.1% for the month but it remained well within the central bank’s comfort zone, giving it room to continue with a gradual pace of monetary policy tightening without hurting economic growth.
China’s PPI slowed for a second straight month, coming in at 6.4% versus expectations for a 6.9% rise. The pace further eased from the 7.6% registered in March. Month on month, the PPI edged down 0.4%, the first monthly drop since July last year. Producer prices were set to fall again in May given that the rout in industrial commodity prices had deepened. China’s PPI has stayed in positive territory since September, partly due to the government’s successful campaign to cut industrial overcapacity, which benefited the wider economy.
The retail sector was particularly on the nose last week with some of the major retailers including Myer, JB Hifi, Harvey Norman and Super Retail among the week’s biggest losers (see below). Weak retail sales figures were the primary driver and it would be interesting to know to what extent (if any) interest rate rises on interest-only loans have had on these figures. We were surprised to learn recently that approximately a quarter of new loan approvals in recent years to owner-occupiers have been on interest-only terms. Not only would some of these now be on a higher interest rate but others would be rolling off their interest-only terms into a higher principal and interest payments.
The Week Ahead
US: Building Permits
Australia: Unemployment Rate
Europe: Eurozone GDP
UK: Retail Sales M/M
China: Industrial Production Y/Y
Entertainment & leisure company Ardent Leisure reported that its theme park visitor numbers and revenue has fallen by more than 35% over February and March. This has resulted in the company expecting an EBITDA loss of between $2 million and $4 million for the 12 months ending 30 June 2017.
Explosives & fertiliser company Incitec Pivot reported an 11% lift in first half profits to $152.1 million. This was mostly driven by its US operations through a combination of increased production in its industrial chemicals division, with first production starting at its Ammonia plant in Louisiana, and its explosives division which benefited from increased demand from quarrying and construction industries.
Building products producer CSR reported a 25% rise in annual net profit, helped by the homebuilding boom in Australia that has increased demand for building products including concrete and cement. CSR announced that its net profit totalled $177.9 million in the year to 31 March 2017, up from $142.3 million for the previous year.
Markets in Review
S&P ASX 200
SHANGHAI COMPOSITE INDEX
ASX200 Biggest Movers for the Week
ASX200 Sector Performance for the Week
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