Market Update

Markets

• Local and global stock markets fell at President Trump ramped up his trade rhetoric.

• Investors in US technology stocks took a bath this week with both Intel and Twitter plunging on missed earnings estimates and a decline in monthly active users, respectively. This follows Facebook’s large one day fall last week.

• In contrast, Apple delivered a strong 3rd quarter result, with investors pushing the company to a market value above US$1 trillion.

• 2nd quarter US company reporting season is well past its midpoint with market expectations remaining high for 22% earnings growth across the largest 500 listed US companies. Over 80% of companies have beaten market estimates to date.

• In local stock news, Telstra has made sweeping changes across their management team, with the head of technology, head of wholesale, and chief marketing officer all departing. The news comes on the back of their recently announced moves to slash 9,500 jobs.

• In a trading update, AMP Limited has flagged over $800m in costs being set aside for anticipated client remediation, costs of client file reviews, upgrade of compliance systems, and other one-off costs. The company will also cut pricing on its MySuper products. Dividend guidance was at the lower end of the payout range.

• Nine updated the market on their proposed merger with Fairfax saying they expect the transaction to be earnings per share neutral for Nine, and that’s after assuming the full benefit of costs savings. That quite obviously brings into question the basis for the merger for shareholders…..

• Rio Tinto reported a 1st half result below market expectations, missing earnings and dividend expectations, as cost pressures rose. However, the company is a flush with cash announcing an increase to their buy-back program by US$1bn. They also announced that money from its recent asset disposals will be returned to shareholders over time.

Economics

• A surprise result in approvals for construction of Australian new homes in June, with figures showing a 6.4% lift, coming in well above market expectations.

• The US economy grew at a 4.1% annualised rate in the 2nd quarter, its fastest pace in nearly 4 years, on higher consumer spending and farmers rushing soybean shipments to China to beat tariffs. Whilst the pace of growth is clearly healthy, the boost is expected to be a one-time hit as trade and tax cut effects unwind over the next 12 months.

• US consumer spending rose in June in line with market estimates, however May’s figure was upwardly revised. Personal incomes rose, but there was no upward pressure on the US central bank’s preferred measure of inflation.

• Latest US labour market data showed strong new addition of jobs in July, well above market expectations with June’s figures also being upwardly revised.

• The UK central bank raised interest rates by 0.25% to 0.75%. The move, only the 2nd rate hike in nearly a decade, was expected by market participants.

• Chinese economic data came in weaker than expected by the market with key manufacturing and service sector indices falling, as the government continues to clamp down on polluters and heavy industries.

Politics

• PM Malcolm Turnbull has indicated he will re-examine his government’s policies after the Coalition failed to win two keys seats from Labor in the weekend’s by-elections, with Labor also winning the other 2 seats up for grabs. Whilst Turnbull clearly remains the preferred PM in the polls, Labor’s messaging and campaigning is clearly resonating with voters.

• A report noted that representatives of the US Treasury Secretary and the Chinese Vice Premier are having private conversations as they look for ways to re-engage in negotiations. Subsequently, and confusingly, the White House then announced a proposal to raise tariffs on US$200bn worth of Chinse products to 25%, up from 10%.

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