Investment Week in Review - 24 April 2017

By Marcus Damen - April 24, 2017

Pitcher Partners' wrap up of issues impacting the markets over the last week.

News in Review

  • The first round of the French election saw Emmanuel Macron and Marine Le Pen go through to the second round in an apparent rejection of the political establishment.  It was the first time in modern history that neither of the two major parties had a successful candidate. 
  • In an apparent attempt to crystallise a larger parliamentary majority signalled by opinion polls, UK PM Theresa May announced an election that will take place on the 8th of June, having significant implications for the UK’s Brexit negotiations.
  • The US Fed’s latest Beige Book (a report on economic conditions published by the Fed 8 times a year) reported that economic activity increased across all twelve Federal Reserve Districts between mid-February and the end of March, with the pace of expansion said to be “equally split between modest and moderate”.
  • Minutes from the Reserve Bank of Australia’s April meeting expressed a more dovish tone than the previous month’s minutes, indicating the central bank’s growing concerns about deteriorating employment conditions (namely wage growth) and rising household debt.
  • In its latest World Economic Outlook report, the International Monetary Fund (IMF) raised its growth forecasts for the Australian economy, upgrading GDP to 3.1% for 2017, from 2.5% in 2016, and at 3% for 2018.  While the IMF also lifted its growth forecasts for the US, China, Europe, Britain and Japan, it expects Australia to retain its position as the fastest growing economy among the 20 largest advanced economies.
  • Chinese new home prices rose in 68 of 70 cities in March, up from 67 cities in February. Analysts have estimated the country average annual increase sits at 11.3%.  The extraordinary price boom seen in Beijing and Shanghai is showing feint signs of cooling, with annual rates of increase falling below 20%.

Comment

The market’s focus will no doubt be very much on France at the start of the week, however as that poll was merely round one of a two-round process, it’s likely the focus will shift away quite quickly and it may well come right back to the US and in particular a spending bill which is required to keep the government solvent now that it is bumping up against the $20.1 trillion debt.  

While the markets are anticipating that the can will be kicked down the road for a couple of months yet, there will be some more serious debt ceiling negotiations before too long and it will be fascinating to see how Donald Trump approaches these. 

Approximately one year ago, during the election campaign, Trump asserted that he would pay off the entire public debt within eight years if he was to become President.  Further, he has been quite critical of the Republicans in the past for allowing the debt ceiling to continue to rise and these actions suggest that he would be against further increases in the debt ceiling. 

However, with the Congressional Budget Office having a baseline forecast of more than $6 trillion of cumulative deficits over the next eight years (before the cost of Trump’s grandiose infrastructure and tax reform plans are factored in) and with meaningful spending cuts proving difficult to achieve, it would seem that he doesn’t have much choice but to go with a debt ceiling increase. For some perspective, the cuts to the EPA budget that Trump managed to achieve equate to less than three hours’ worth of total net government spending at the current rate. 

The Week Ahead

  • US: Consumer Confidence (APR), Durable Goods Orders (MAR)
  • Australia: Consumer Prices Index (YoY) (1Q)
  • Europe: European Central Bank Rate Decision (27 APR)
  • UK: Gross Domestic Product (YoY) (1Q A)
  • China: Conference Board China March Leading Economic Index

Company News

  • Australia's Foreign Investment Review Board approved a $7.48 billion takeover offer for energy utility operator DUET Group by a Hong Kong consortium led by Cheung Kong Infrastructure. 
  • Shares in soft drink giant Coca-Cola Amatil slumped almost 11% following an earnings downgrade due to shrinking revenues across its two main distributors, Coles and Woolworths.
  • The Commonwealth Bank hiked fixed interest rates on investor and interest-only home loans.  Fixed rates on interest-only loans will rise by 25 basis points, while investor home loans that are principal and interest will rise by 25 basis points. Investor loans that are interest only will rise by between 25 and 50 basis points. 

Markets in Review

 

Capital Return

   
 

Weekly

CYTD

FYTD

S&P ASX 200

-0.6%

3.3%

11.9%

DOW JONES

0.5%

4.0%

14.6%

S&P 500

0.8%

4.9%

11.9%

UK FTSE100

-2.9%

-0.4%

9.4%

FRENCH CAC40

-0.2%

4.0%

19.4%

GERMAN DAX

-0.5%

4.9%

24.5%

JAPANESE NIKKEI

1.1%

-2.6%

19.5%

SHANGHAI COMPOSITE INDEX

-3.1%

2.2%

8.3%

ASX200 Biggest Movers for the Week

ASX200 Sector Performance for the Week

$1 Australian buys you:

Security

Last Price

AUDUSD

0.7539

AUDGBP

0.5886

AUDCNY

5.1880

AUDJPY

82.4315

AUDEUR

0.7036

AUDNZD

1.0754


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