Pitcher Partners Investment Services' wrap up of news and current affairs impacting the markets.
News in Review
The US economy grew at its fastest pace in two years in the September quarter as a surge in exports and a rebound in inventory investment offset a slowdown in consumer spending. The surge in exports was largely linked to a drought in South America which increased the demand for coffee beans and soy beans exported to the area. While the annualised growth rate (based on this quarter) is 2.9%, we caution that this quarter’s growth was based on one-off events, and growth over the past year is closer to 1.5%.
Australia’s consumer price inflation (CPI) rose by 0.7% for the September quarter, leaving the year-on-year increase at 1.3%. The probability of the RBA cutting rates at its Melbourne Cup day meeting now sits at just 5% according to the futures market, down from 14% prior to the report’s release.
In China, new home prices in the 70 major cities rose 2.1% in September to be 11.2% higher over the past 12 months. Prices in the key commercial hubs of Beijing, Shanghai and Shenzhen increased by 27.8%, 32.7% and 34.1% respectively over the year, exemplifying widespread concerns of a rising property bubble.
Consumer confidence fell in the US in October after having soared in the previous two months. Americans lowered their assessments of both the economy’s present state and future amid jitters about the looming presidential election and a moderating labour market.
The Eurozone’s economic recovery showed continued signs of resilience in October with the Purchasing Managers’ Index rising to 53.7, up from 52.6 in September. The figure represents the fastest expansion in the year to date and is well above the crucial 50 level that separates an expansion in activity from a contraction. The region’s largest economy, Germany, was the strongest performer thanks to a pick-up in factory activity.
The UK’s first official growth figures since the Brexit vote defied the UK government’s warnings of an immediate recession if Britain voted to leave the EU. Gross domestic product for the UK rose 0.5% in the three months to September, easily outpacing consensus estimates of 0.1% growth.
Japan's consumer prices fell in September for the seventh straight month, placing further pressure on the Bank of Japan to continue monetary easing as needed until inflation reaches and stabilises at the 2% target set by Prime Minister Shinzo Abe in 2013. The disappointing data came as the world's third largest economy struggles to revitalise growth and conquer a long battle against deflation.
With less than two weeks until the US Presidential Election, global economic news is taking a back seat to the Trump versus Clinton battle. It appears that the probability of Trump winning is low, according to the forecast below:
Reflecting back to June on the Brexit vote, it is clear that markets probably aren’t prepared for a Trump win and it is a good reminder to look towards polls as a guide only, rather than a true reflection of the voting outcome.
A good distraction from the election this week will be the US Federal Reserve Meeting to discuss monetary policy and the RBA’s meeting tomorrow on Melbourne Cup Day.
The Week Ahead
Australia: AiG Performance of Service Index (OCT), Reserve Bank of Australia Rate Decision.
US: ISM Manufacturing (OCT), Change in Non-farm Payrolls (OCT), US Federal Reserve meets to discuss monetary policy.
Europe:UK: German Unemployment Change (OCT), Bank of England Rate Decision (NOV 3).
China: Manufacturing PMI (OCT).
Japan: Bank of Japan Policy Rate.
Woolworths' reported that its underlying food sales grew for the first time in almost two years after the supermarket giant spent $1 billion in lowering prices. New Chief executive Brad Banducci described the growth as modest and claimed that the revamped customer loyalty program has yet to materially affect sales.
Ardent Leisure saw approximately a quarter of its market capitalisation wiped after four people were tragically killed at its popular Gold Coast tourist destination Dreamworld due to a malfunction with the 'Thunder River Rapids' ride.
Wealth management and insurance giant AMP will take a hit to profit of at least $565 million after conditions deteriorated in its life insurance business. AMP said losses in its life insurance business of $44 million in the third quarter of 2016 forced the company to review long-term trends in the sector. The company said that the deteriorating environment had been caused by a "by a range of factors in a period of unprecedented external scrutiny".
US tech powerhouse Apple reported its first decline in profit and revenue since 2001. Chief executive Tim Cook remained upbeat, saying there has been a positive response to the new iPhone 7 which he expects will result in strong sales growth in the December quarter.
Markets in Review
S&P ASX 200
SHANGHAI COMPOSITE INDEX
ASX200 Sector Performance for the Week
ASX200 Biggest Movers for the Week
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