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Update - Markets, Economics & Politics


Company reporting season pushes ASX higher

Markets

  • The local equity market finished higher this week, as did Asian markets with the exception of Japan.

  • The US equity market trended lower whilst European markets were mixed.

  • In local stock news, Telstra reported a reasonable half year result with earnings up 2%, mobile performing well, and cost out programs progressing at an accelerating rate. Dividend looks more than sustainable from here.

  • BHP released a solid 1st half result, with a stronger than expected dividend increase, company gearing now below 20%, and strong free cash flow. However, the market wasn’t impressed as the company was hit with a large one-off income tax charge as a result of US tax law changes.

  • Wesfarmers reported lower 1st half earnings with net profit after tax falling. The culprits were a large decline in earnings at Coles (price cutting, lower sales growth) and losses at Bunnings UK & Ireland, which is proving harder to turn around than expected. In contrast, local Bunnings, Officeworks, and Industrials divisions all performed strongly.

  • Woolworths posted a 1st half result above expectations, with underlying earnings up nearly 15%. Sales were up nearly 4%, with the all-important Australian Food division seeing sales up 5%. Big W continues to struggle.

  • Sydney Airport reported a strong full year result with an extra 1 million international passengers passing through last year. Revenue and earnings were both up over 8% each, helped by a big boost in retail revenue. Costs were a little higher than expected and company debt levels remain elevated.

  • The Aussie dollar fell this week after December quarter wages figures showed growth remains relatively weak, whilst construction work done fell significantly December. The US dollar also exhibited some upward pressure.

Economics

  • US housing starts jumped nearly 10%, pushing the annual rate to the highest level since October 2016. Building permits were also markedly higher, hitting their highest level since mid-2007.

  • A key US consumer sentiment index printed its highest reading since 2004. Plenty of favourable references to the US government were cited by respondents - one-time tax cuts leading to one-off pay rises / bonuses will do that. The government is hoping future economic growth is above normal in order to pay off those lost tax receipts.

  • The Japanese government appointed central bank governor Kuroda for another term, suggesting the government and the central bank are in no rush to dial back its massive stimulus program. Now was not the time for change.

Politics

  • A federal grand jury in the US has indicted 13 Russian nationals and 3 Russian entities accused of interfering in an effort to support then candidate Donald Trump.

  • The US Commerce Department has recommended that President Trump impose steep curbs on steel and aluminium imports from China and other countries. Measures suggested include tariffs and import quotas. China is mainly the target here. The Europeans fired back a quick rebuke and warning.

  • Tensions escalated in the Middle East with Israeli PM Netanyahu warning that his country will directly strike Iran if the government uses Syria to “test” his country.

#Market #WealthManagement

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