Investor sentiment improves on constructive trade talks
Markets
The local share market finished flat this week, whilst global equity markets moved higher buoyed by positive trade war rhetoric with a phase 1 deal in sight.
US company reporting season continued stronger than expected with more than 75% of companies that have reported so far beating profit estimates. However, profit growth forecasts for the next 12 months have been revised lower.
In local stock news, explosives manufacturer Orica reported a robust result driven by strong demand from iron ore, coal and gold miners. Revenues were up almost 10% whilst the company lifted their final dividend.
Macquarie announced a reasonable 1st half result, which was in line with previous guidance. Profit was up 11% whilst the dividend came in slightly ahead of market expectations. The underlying result was a little soft, given one-off items, better trading income, and a lower tax rate.
Westpac announced a fall in full year profit and a cut to their dividend, surprising the market with a $2bn equity raise to keep its capital well above the banking regulator’s benchmark. The weaker result was largely due to a slower economy and remediation costs in its wealth unit. Pleasingly, the all-important net interest margin remained fairly steady.
National Australia Bank has reported a fall in full-year profit of 10.6%, dragged down by its retail and wealth unit along with remediation provisions. The dividend was cut in line with their interim dividend.
James Hardie Industries rose strongly after announcing a 22% rise in profit for the quarter, helped by rising demand for its products and strong operating margins.
Economic
The Reserve Bank of Australia has held the cash rate at a record low of 0.75% on Melbourne Cup day. The bank made it clear that it stands ready to provide further policy support if needed.
Australian retail spending has again disappointed with September data showing 0.2% rise which was half the already underwhelming rise in August. Importantly, retail volumes also fell, which resulted in the first time volumes have fallen on an annual basis since the early 1990s.
New car sales have declined for the 19th month in a row, but the key industry body is expecting better numbers ahead in light of improving access to finance.
US job growth slowed less than expected in October, while job gains in the prior 2 months were stronger than previously thought.
A report showed that the US manufacturing sector contracted for the 3rd straight month. However, a services index report came in better than expected in October, easing concerns that a slowdown in the manufacturing sector was spreading to other parts of the economy.
A private business survey indicated that China’s factory activity in October unexpectedly expanded at the fastest pace in more than 2 years. The data was in contrast to last week’s government data which showed factory activity shrinking.
Politics
News out of the White House indicated trade talks with China were making progress and the US is still aiming to sign an initial deal this month. However, the phase 1 agreement remains unfinished after the Chinese asked for the recent round of tariff increases to be removed as part of signing the agreement, which may push any deal out to December or early next year.
On the technology war front, the US Commerce Secretary said licences for US companies to sell components to China’s Huawei would come “very shortly”.
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