Investment Week In Review - 6 June 2016

By Michelle Heffernan - June 6, 2016

While GDP figures may appear surprisingly strong, after closer inspection, weakness is also evident.

News In Review

  • Australia’s growth in real GDP in the first quarter of calendar 2016 proved much stronger than what the market had anticipated, with our economy growing 1.1% for the first quarter of 2016, for annual growth of 3.1%.  
  • The Housing Industry Association (HIA) survey showed that sales of new homes in Australia fell by 4.7% in April following a surprisingly strong 8.9% surge the previous month.  The association’s chief economist said that “the trend in new home sales reiterates that the peak for the cycle has passed, but the descent we’re now observing is very mild”, and signals the potential for better than expected home construction activity throughout 2016.
  • The Organisation of the Petroleum Exporting Countries (OPEC) did not reach an agreement to curb supply at their meeting in Vienna.  Recent oil price rises have lifted the pressure somewhat.
  • The US unemployment rate improved to 4.7%, however this improvement was superficial.  More Americans stopped looking for work, and this reduction in workforce numbers resulted in the superficial improvement.  Only 38,000 jobs were added in May, well below the average 200,000 per month.
  • Despite a languid start to 2016, US consumer spending recorded its largest monthly increase in nearly seven years in April as households stepped up purchases of durable goods, reflecting the month’s particularly robust motor vehicle sales.  
  • China’s CSI 300 (an index comprising the top 300 stocks on the Shanghai and Shenzhen exchanges) experienced its second best session of the year amid speculation that that MSCI, a global index provider, will soon add mainland-traded Chinese stocks (known as ‘A-shares’) in its Emerging Markets Index.
  • The European Commission’s economic sentiment index rose for a second consecutive month in May, with a 0.7 point rise to 104.7, lifting the index to its best reading since January.  The rise in sentiment is mainly attributed to improvements in confidence among consumers, retail trade and construction sectors.  
  • The European Central Bank announced it will broaden its bond buying stimulus program by commencing purchases of corporate debt and offering new ultra-cheap loans to commercial banks.  President Mario Draghi said that the ECB would not hesitate to provide more support to the economy if needed. 

Comment

We have analysed the GDP figures released this week and while they may appear surprisingly strong to some (3.1% annual growth), after closer inspection, weakness is also evident.

GDP measures the overall economic activity each year, in other words, the monetary value of all the goods produced.  Our country is not struggling to produce goods.  Just look to recent production output figures from any of our large miners and you will see ‘record production levels’.  However, with commodity prices low, the benefit of producing at record levels is lost.  Profits are actually moving backwards.

The Week Ahead

  • US: Fed Chair Yellen to Speak in Philadelphia, U. of Michigan Confidence (JUN P)
  • Australia: Reserve Bank of Australia Rate Decision, Home Loans (APR)
  • Europe: Euro-Zone Gross Domestic Product (YoY) 
  • China: CNY Foreign Direct Investment (YoY), Consumer Price Index (YoY) (MAY)
  • Japan: Gross Domestic Product (YoY), Machine Orders (YoY) (APR)

Company News

  • Asciano shareholders have voted in favour of a $9.2bn takeover bid from Qube and Brookfield Infrastructure.

  • South 32 has warned of "more pain to come" for the mining sector amid expectations that the recent rise in some commodity prices will not be sustained.  "I am not convinced we are through the challenging price environment. I'm sure there is still more pain to come," chief executive Graham Kerr said in an interview with the Financial Times.

  • The Federal Government is opening the doors to competition in the clearing of shares which currently is the main domain of the Australian Securities Exchange (ASX). Treasurer Scott Morrison said the government is absolutely committed to open and competitive markets which are “fundamental to a vibrant 21st century economy”.

  • Woolworths has been fined $9 million over its role in a laundry detergent cartel case brought by the competition watchdog. The supermarket giant has admitted to being "knowingly concerned in an anti-competitive understanding" between detergent producers.

  • On a positive note, an analysis of a basket of goods from Coles and Woolworths found Woolworths to be cheaper.  Aldi was unsurprisingly found to be the cheapest.

  • BP agreed on Thursday to pay US$175 million to shareholders who brought a class-action lawsuit that accused the oil company of misleading them by understating the severity of the 2010 oil spill in the Gulf of Mexico. 

Markets in Review

 

Capital Return

   
 

Weekly

CYTD

FYTD

S&P ASX 200

-1.6%

0.4%

-2.6%

DOW JONES

-0.4%

2.2%

1.1%

S&P 500

0.0%

2.7%

1.7%

UK FTSE100

-1.0%

-0.5%

-4.8%

FRENCH CAC40

-2.1%

-4.6%

-7.7%

GERMAN DAX

-1.8%

-6.0%

-7.7%

JAPANESE NIKKEI

-1.1%

-12.6%

-17.8%

SHANGHAI COMPOSITE INDEX

4.2%

-17.0%

-31.3%

$1 Australian buys you:

   $0.7247
£0.5028
¥4.7701
¥78.8335
€0.6499
$1.0611

 

 

 

 

 

 

ASX200 Sector Performance for the Week

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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