Investment Week in Review - 18 January 2016

By Michelle Heffernan - January 18, 2016

We direct our attention now to the upcoming reporting season in Australia to gain a better understanding of the company earnings in these turbulent times.

News in Review

  • The Australian unemployment rate improved by 0.1% to 5.8% during the month of December. Full time employment rose by 17,600 for the month however 18,500 part time jobs were lost.  While the figures equated to an overall reduction of 1,000 jobs for the month, the movement towards full time roles was positive.  

  • The oil price fell below $30 a barrel for the first time in 12 years with global supply exceeding current demand.  

  • The Federal Reserve Beige Book which offers insights into economic activity across the United States showed that nine of the twelve districts were expanding activity. Consumer spending was reported to be “slight to moderate”.

  • Retail sales in the U.S. were down 0.1% in December, and were 2.1% higher over the year.  The growth in sales in 2015 was weaker than the 3.9% gain in sales the previous year. 

  • U.S. producer prices were 0.2% in December, as low energy prices helped deflate the costs.

  • Consumers were more confident in the U.S. with the index showing an improvement from the previous month, at 93.3 (from 92.6).  Consumers were more optimistic about further growth expectations in the country.

  • December’s Chinese Trade Balance showed a surplus of 382 billion yuan, an expansion on November’s figure of 343 billion. Exports increased by 2.3% (YoY) compared to a forecast of -4.1%. This increase is the largest since February 2015. Chinese imports however fell 4.0% over the same corresponding period although this was less than the -7.9% forecast. 

  • U.K. Manufacturing Production decreased by 0.4% in November compared with October 2015. The largest detractor was from the pharmaceutical sector which decreased by 4.9%. Despite the manufacturing weakness, product for the 12 months to November 2015 increased 0.9% led by a 10.5% increase in the mining sector. 

  • The Bank of England Monetary Policy Committee met for their scheduled January meeting and voted to maintain the Office Bank Rate at 0.5%, extending record low interest rates in U.K. to over seven years. The Committee also unanimously agreed to maintain the current level of its Quantitative Easing program at £375 billion.

Comment

The majority of the recent focus and attention has been on global economic data particularly pessimistic views on China’s current and future economic position.  While fundamental aspects like this certainly do have an impact on the ability of some companies to perform well and increase earnings, it is important to remember that we invest in companies, not economies.

We direct our attention now to the upcoming reporting season in Australia to gain a better understanding of the company earnings in these turbulent times. After all, share prices should be dictated by company performance and performance is a product of earnings. 

The Week Ahead

  • US: Building Permits, Housing Starts, Consumer Price Index (CPI), Philly Fed Manufacturing Index and Crude Oil Inventories
  • Australia: Westpac Consumer Sentiment.
  • China: GDP q/y and Industrial Production y/y
  • Eurozone: German ZEW Economic Sentiment, Minimum Bid Rate, ECB Press Conference, French & German Flash Manufacturing PMI 
  • UK: CPI y/y, Average Earnings Index 3m/y, Retail Sales m/m

Company News:

  • BHP Billiton has announced that it expects to recognise an impairment charge of approximately US$4.9 billion post-tax (or approximately US$7.2 billion pre-tax) against the carrying value of its Onshore US assets. This charge will be recognised as an exceptional item in the financial results for the half year ended 31 December 2015. The impairment charges will reduce the Onshore US net operating assets to circa US$16 billion. The impairment has resulted from lower oil prices, technology improvements which increased supply and higher volatility which has increased the discount rate applied to the assets. 

  • Wesfarmers Ltd made a conditional offer to acquire UK home improvement retailer Homebase for $700 million (AUD). Homebase is the 2nd largest home improvement retailer in the region and is currently owned by Home Retail Group.

  • Homebase operates 265 stores in the UK, revenue of approximately £1.46bn and EBIT of £26 million. The stores will be rebranded to the highly successful Bunnings hardware name.

  • U.S. Banks JP Morgan Chase, Citigroup and Wells Fargo reported results with JP Morgan showing better than expected profits, due to cost cuts. The bank expressed confidence about the upcoming year.

Markets in review

 

Capital Return

 
 

Weekly

FYTD

CYTD

S&P ASX 200

-2.0%

-10.4%

-7.6%

DOW JONES

-2.2%

-9.3%

-8.2%

S&P 500

-2.2%

-8.9%

-8.0%

UK FTSE100

-1.8%

-11.0%

-7.0%

FRENCH CAC40

-2.9%

-12.1%

-9.2%

GERMAN DAX

-3.1%

-12.8%

-11.1%

JAPANESE NIKKEI

-3.1%

-15.3%

-9.9%

SHANGHAI COMPOSITE INDEX

-9.0%

-32.2%

-18.0%

$1 Australian buys you:

   $0.6953
£0.4826
¥4.5817
¥81.9570
€0.6391
$1.0798

ASX200 Sector Performance for the Week

sector performance chart

 

ASX200 Biggest Movers for the Week

 

Disclaimer

 
This material is intended for the use of the clients of Pitcher Partners Investment Services only.  It is current at the date of preparation, but may be subject to change.  This document does not constitute financial product advice.  It is of a general nature and has been prepared without taking into account any person’s objectives, financial situation or needs.  Before acting on the information you should consider the appropriateness of it having regard to your objectives, financial situation or needs and seek independent advice.  You should obtain and consider a Product Disclosure Statement in relation to any financial product before making any decision about acquiring the product.  To the maximum extent permitted by law, Pitcher Partners Investment Services Pty Ltd and its representatives will not be liable for any loss or damage incurred by any person directly or indirectly for any use or reliance on this document.

 


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