Investment Week in Review - 8 May 2017

By Marcus Damen - May 8, 2017

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

News in Review

Australia

  • As widely expected, the RBA kept the cash rate unchanged at 1.50%.  Remarks in the accompanying statement remained consistent with previous statements, including specific references to housing debt imbalances: “Growth in housing debt has outpaced the slow growth in household incomes. The recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness”.

US

  • Employment rebounded sharply in April with 211,000 jobs added and the unemployment rate dropping to 4.4%, moves that could seal the case for an interest rate increase next month.
  • The Fed remains on track to gradually tighten monetary policy after leaving interest rates unchanged and signalling they were not alarmed by recent U.S. economic weakness in Q12017. The decision to leave the target federal funds rate unchanged in a range of 0.75% to 1% was unanimous and widely expected by investors.

Europe

  • Emmanuel Macron has comfortably defeated Marine Le Pen in the second and final round of the French Presidential Election with a vote of approximately 66% to 34%. 
  • Germany’s number of unemployed fell by a seasonally adjusted 15,000 people compared to the previous month - the seventh consecutive decrease. Overall the unemployment rate is a record low of 5.8%.
  • Spanish unemployment was also released this week which showed a record monthly drop in unemployment figures with a reduction of almost 130,000 people registered as unemployed. Spain’s unemployment rate sits at approximately 18.75% however this has been in gradual decline.

UK

  • Britain’s manufacturing PMI has seen its fastest growth for three years reaching 57.3. The main cause of inflows appeared to be the domestic market which remained the principal source of new contracts.
  • Construction growth picked up as well with a PMI or 53.1 up from 52.2 in March. The PMI has remained fairly stable since February. It was noted that Civil engineering expanded at its fastest pace in 13 months.

China

  • April showed the weakest improvement in manufacturing in seven months after China’s Caixin general manufacturing PMI returned registered a result of 50.3 down from March’s result of 51.2. The softer growth has coincided with a reduction in new work from abroad and with the fastest payroll cut since January.

Comment

The US unemployment rate has now fallen back to a level that is very low in a historical context and, while it indicates what has been happening in the jobs market, it tells us little about what will happen in the economy or the equity markets going forward. The last couple of times that the unemployment rate reached current levels was 2007 and 1999, which were followed by a downturn in both the economy and equity markets. 

At both of those times, however, interest rates were much higher than they currently are, so the same will not necessarily happen again any time soon, but such precedents are worth bearing in mind over the medium term ahead, especially as interest rates rise. 

The Week Ahead

  • US: Consumer Price Index (YoY) (APR)
  • Australia: Building Approvals (YoY) (MAR)
  • Europe: German Gross Domestic Product n.s.a. (YoY) (1Q P)
  • UK: Bank of England Rate Decision (MAY 11)
  • China: Consumer Price Index (YoY) (APR)

Company News

  • On Sunday Fairfax revealed TPG Group had made an unsolicited approach that would see property listings business Domain sold to TPG along with the metropolitan publishing assets (including theSydney Morning HeraldThe Age and the Australian Financial Review) to form a new company the consortium is calling "Domain Co".  TPG is offering 95 cents per share in cash to create get the assets to create Domain Co, which would not be listed, along with scrip in a new listed vehicle which would own Fairfax's remaining assets including its New Zealand media titles and its 50 per cent stake in streaming video service Stan.
  • Qantas (QAN) has launched a new credit card promising more frequent flyer points at the same time as its loyalty scheme has helped power Qantas’ share price to an almost 10-year high. Qantas confirmed plans to offer its own credit card through a tie-up with Mastercard and investment bank Citi. Qantas Loyalty chief executive said that the card was a response to the strong consumer demand for points as parts of everyday spending.
  • Telstra shares rebounded after its important win in the battle to share its network infrastructure with its competitors. The Australian Competition and Consumer Commission (ACCC) released its draft decision proposing to not “declare” wholesale domestic mobile roaming service. A decision to “declare” mobile networks would have forced Telstra, Optus and Vodafone to let other carriers access their entire networks at regulated prices. After the announcement, Telstra investors cheered the news sending Telstra shares up almost 4.0% to $4.40 at the closing of trading on Friday.
  • Shares in Vocus Communications (VOC) fell almost 30% following the telecom operator’s second profit warning in six months, as management grapple with a raft of problems following its rapid expansion. Vocus blames the latest downgrade on issues including revenue delays from contract on major contracts and lower earnings from its recently launched New Zealand energy retail business.
  • Macquarie Group (MQG) has posted a $2.2 billion full-year profit after a strong second half performance. Its full year profits was up 7.5% in comparison to the previous year. Profit in the six months to end of March was 11% compared to the previous half and 18% compared to the same half last year. The group will pay a final ordinary of $2.80 a share (45% franked) over the $1.90 first half dividend and the $2.40 it paid out a year ago.

Markets in Review

 

Capital Return

   
 

Weekly

CYTD

FYTD

S&P ASX 200

-1.5%

3.0%

11.5%

DOW JONES

0.3%

6.3%

17.2%

S&P 500

0.6%

7.2%

14.3%

UK FTSE100

1.3%

2.2%

12.2%

FRENCH CAC40

3.1%

11.7%

28.2%

GERMAN DAX

2.2%

10.8%

31.4%

JAPANESE NIKKEI

1.3%

1.7%

24.8%

SHANGHAI COMPOSITE INDEX

-1.6%

0.0%

5.9%

ASX200 Biggest Movers for the Week

ASX200 Sector Performance for the Week

$1 Australian buys you:

Security

LastPrice

AUDUSD

0.7391

AUDGBP

0.5715

AUDCNY

5.0964

AUDJPY

82.9510

AUDEUR

0.6732

AUDNZD

1.0742


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