Investment Week In Review - 5 September 2016

By Marcus Damen - September 5, 2016

Glenn Stevens to hand over to Philip Lowe as Governor of the Reserve Bank of Australia after 10 year tenure.

News in Review

  • The US added 151,000 jobs in August, below economists’ forecasts for 180,000 and a marked slowdown after two bumper months of growth. Figures from the Department of Labor also showed wage growth slowed and the unemployment rate remained steady at 4.9%, defying expectations for it to edge down.
  • Australia’s retail sales were flat in July, lowering the annual growth to 2.9% and continuing the weak momentum seen in 2016. The outcome was primarily driven by weak department store sales and casts doubt over the perceived strength of household consumption.
  • Australia’s booming housing market showed signs of easing, with the latest Housing Industry Survey indicating a 9.7% slump in sales in July, entirely reversing the 8.2% gain from June. While extremely volatile due to the impact of higher density housing sales, the total number of sales recorded in July was the lowest seen since July 2014. 
  • India's gross domestic product in the June quarter slowed to 7.1% from 7.5% in the same period last year due to lower activity in farm, mining and construction sectors. The slowdown makes the government’s target of 8% growth this year less likely, however recent monsoon rains following two years of drought is expected to significantly boost growth in the remaining quarters of 2016.
  • The European Commission’s economic sentiment index fell to 103.5 in August, which is the lowest level since March and and suggesting that Britain’s vote to leave the EU may be starting to hit sentiment across the bloc and suggesting that Britain’s vote to leave the EU may be starting to hit sentiment across the euro region. Confidence was down in four of the Eurozone's five largest economies, with France the only exception where the index rose moderately.
  • China’s consumer confidence index fell 2.5 points to 111.5 in August, which was the lowest reading since February and just marginally above last year’s historic low. While a figure above 100 indicates that there are presently more optimists than pessimists, there has however never been a sub-100 reading in the history of the survey dating back to 2007.
  • US Consumer spending rose for the fourth straight month in July, a sign that domestic consumption could continue to drive U.S. economic growth over the second half of 2016. The robust spending over the past four months may signal to firms to replenish their stockrooms, which could spur new manufacturing activity and boost growth in the short term.
  • The US ISM Manufacturing PMI fell back into contractionary territory at 49.4 in August from 52.6, its lowest level since February. The decline stands in contrast to recent hawkish US Fed commentary and is likely to reduce the probability of a September rate hike given the implied job losses.
  • Dilma Rousseff was formally impeached by the senate as President of Brazil for manipulating the budget. Her removal puts an end to the 13 years in power of her left-wing Workers' Party. Michel Temer was sworn in as president and will serve out Ms Rousseff's term until 1 January 2019. 

Comment

With the US Federal Reserve indicating that any rate rise will be ‘data dependent’ and the primary focus being on employment data, each monthly jobs report is now attracting more attention than ever and any surprises are having a big impact on markets. The jobs report on Friday was neither particularly weak nor particularly strong and therefore had little impact. Monthly economic data points can be very volatile and include estimates which take some time to be confirmed, so as long term investors we prefer to focus on the underlying trend in the data which remains quite neutral in that jobs gains are at a level that merely keeps up with population growth.  

As for the Reserve Bank of Australia, tomorrow’s meeting will be the last with Glenn Stevens as Governor as he then hands over to his successor, Philip Lowe. Glenn Stevens was in the role for 10 years and when he took over from Ian Macfarlane in 2006 the official rate was 6.00%. He finishes with the rate at a quarter of that level (1.50%) illustrating the lengths that he had to go to in order to avoid a recession during his tenor. Lowe now has much less ammunition than Stevens commenced with.

The Week Ahead

  • Australia: RBA Interest Rate Decision, Gross Domestic Product (YoY)
  • US: Labour Market Conditions Index (Aug)
  • UK: Inflation Report Hearings
  • Europe: ECB Interest Rate Decision, Gross Domestic Product (YoY)
  • China:  Caixin China Services PMI

Company News

  • Australia's second biggest fixed-line internet provider TPG Telecom made the first move toward becoming Singapore's fourth mobile communications operator by submitting the necessary expression of interest to take part in the bidding process for mobile spectrum.
  • Apple chief Tim Cook slammed a European Commission ruling demanding the US tech giant pay Ireland €13 billion in back-taxes as "political crap", urging the Irish government to launch an appeal.
  • Aurizon appointed Andrew Harding as chief executive in place of Lance Hockridge, calling the former Rio Tinto iron ore head the right person to increase value for shareholders.
  • Ratings agency Moody's says plans by David Jones to expand its premium food selection are credit negative for Woolworths and Wesfarmers owned Coles, as it could weaken their market share.

Markets in Review

 

Capital Return

   
 

Weekly

FYTD

CYTD

S&P ASX 200

-2.6%

2.7%

1.5%

DOW JONES

0.5%

3.1%

6.1%

S&P 500

0.5%

3.9%

6.7%

UK FTSE100

0.8%

6.0%

10.4%

FRENCH CAC40

2.3%

7.2%

-2.0%

GERMAN DAX

0.9%

10.4%

-0.6%

JAPANESE NIKKEI

3.5%

8.7%

-11.1%

SHANGHAI COMPOSITE INDEX

-0.1%

4.7%

-13.3%

ASX200 Sector Performance for the Week

ASX200 Biggest Movers for the Week

 

$1 Australian buys you:

   $0.7540
£0.5683
¥5.0382
¥78.1515
€0.6739
$1.0357

 

 

 

 

 

 

 

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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