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Financial Market Update - 8th October 2019

Equity markets fall on weak US manufacturing data


Markets

  • Local and global equity markets fell this week on concerns regarding the state of the US economy and the impact of trade wars on the global economy.

  • In local stock news, Nufarm shares soared after the company announced it would sell its South American business to its Japanese partner, Sumitomo, for $1.18bn. The sale was required to reduce the company’s debt levels which were too high.

  • National Australia Bank will take a $1.18bn hit to its full year results, which includes $832m in remediation costs to financial planning and insurance customers.

  • The oil price fell this week on reports of a potential ceasefire in the Middle East and concerns regarding weakening global economic growth.


Economic

  • The Reserve Bank of Australia lowered the cash rate by 0.25% to 0.75%, citing their need to support employment and income growth, and to provide greater confidence that they can meet their medium term inflation target. All 4 major banks won’t be passing on the full rate cut.

  • Credit rating agency Moody’s are anticipating more Australians will fall behind in their mortgage payments over the next 3 months citing worsening economic conditions and still plenty of conversions of interest only to principal and interest loans.

  • US manufacturing activity fell into contractionary territory, coming in well below economist expectations. The sharp contraction in September followed another large fall in the data point in August.

  • Other US data was mixed, with household spending edging up, but it was the softest data print since February, personal incomes rose but came in slightly below forecasts, and the US central bank’s preferred measure of inflation rose slightly over the month lifting the annual rate to 1.8%, which is reasonable but still below the bank’s 2% target.

  • European data was poor, with economic sentiment falling to its lowest level in nearly 5 years, whilst factory confidence across the zone hit its lowest level in 6 years.

  • In contrast, the Eurozone’s jobless rate fell to its lowest level in more than 11 years, falling to 7.4%. The rate remains too high to lift wages and hence stoke consumption.

  • UK economic growth for the June quarter contracted by 0.2%, making a rate cut the UK central bank’s likely next move.

  • Chinese manufacturing data came in above expectations, but the reading remains in contractionary territory.


Politics

  • US President Trump threw another spanner in the works with reports he was considering delisting Chinese companies from US stock exchanges. The White House dismissed the reports as “fake news”.

  • President Trump took another swipe at the US central bank, specifically its chair, blaming them for the sharp fall in manufacturing data due to their reluctance to cut rates. The data is poor largely to due to the impacts of Trump’s trade war. President Trump and the bank now clearly playing a game of cat and mouse – any further rate cuts will enable Trump’s trade reckoning, whilst weakening economic data and falling equity markets leading into an election year may force a trade war resolution.

  • The World Trade Organisation ruled in favour of the US in a grievance that is part of a long running aircraft subsidy dispute involving Boeing (US) and Airbus (EU). The US is now likely to hit European imports with billions of dollars of tariffs.

  • UK PM Boris Johnson unveiled a final Brexit proposal that whilst seeming to address the Irish border issue, is highly unlikely to be agreed to by the EU.

  • According to reports, Saudi Arabia has moved to impose a partial cease-fire in war-torn Yemen, as Saudi and Houthi militants try to bring an end to a 4 year war.



Written by Chris Lioutas



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