Weekly Market Update - 4th November 2019
Rise in Aussie dollar puts RBA rate cut in play
The local equity market finished lower this week whilst global equity markets were mixed, with central bank decision making and trade wars dominating headlines.
In local stock news, ResMed surged to an all-time high after announcing profit was up 19%. The company reported strong revenue growth in the quarter with margins also rising.
Woolworths’ shares fell during the week after the company announced it had underpaid 5,700 staff as much as $300m over the past 9 years.
Carsales.com expects group revenue, earnings and profit growth to be solid in the 2020 financial year, with the company forecasting a gradual recovery in the Australian automotive market, driven by low rates, an improving lending environment, recovering property market, and recent tax changes.
Coles Group shares rose after the company announced flat sales in the 1st quarter against analyst predictions of a fall. The result was much weaker than the same period last year due to the failure of round 2 of the “Little Shop” campaign which was easily defeated by Woolworths’ Lion King Ooshie collectibles.
ANZ Bank shares fell with the CEO citing increased competition, regulatory change, and global uncertainty as weighing on the bank’s profit. The company also announced it would pay only a partially franked dividend.
The Aussie dollar rose against the US dollar following the US central bank’s cut to their cash rate and a better than expected Australian inflation number in the September quarter. The RBA has their work cut out for them from here to get the currency lower.
Australian inflation surprisingly rose to 1.7%. The move up caught many off guard, with the market now dialling down the probability of another RBA rate cute before year end. Australian inflation remains well below the RBA’s preferred range, with the RBA now firmly focused on slack in the labour market and strength in the Aussie dollar.
Australian consumer confidence has taken another hit according to a key survey with respondents’ view of the economy over the next year slumping, whilst sentiment regarding the state of the economy during the next 5 years also falling sharply.
In contrast to the weakening economic outlook, the survey registered a significant improvement in respondents’ view of their current financial condition versus a year ago and optimism ticked up regarding respondents’ view of their finances and that of their families over the next 12 months. Rate cuts and tax handouts may have assisted.
The US central bank cut interest rates to 1.50% as expected, but cited a potential pause in the current easing cycle. The central bank also announced another stimulus program which will see them buy short term US government debt in order to provide additional liquidity into the system.
The US commerce department’s advance reading of 3rd quarter economic growth showed growth slowing from 2.1% to 1.9%, but better than the 1.6% rate expected by analysts.
Chinese industrial profits fell 5.3% on the same time last year, which was the 2nd consecutive monthly fall following a 2% decline in August.
Factory activity in China has shrunk for the 6th straight month in October and by more than expected by economists. The fall shouldn’t be overly surprising given slowing global demand caused by the trade war. The Chinese government has made clear they stand ready to provide stimulus as needed.
Hong Kong has slid into recession for the 1st time since the GFC, with the economy shrinking 3.2% in the September quarter. Retail sales and tourism have plummeted, and foreign businesses have been shifting employees to other south east Asian countries.
The US House of Representatives has passed a vote to formalise impeachment inquiry procedures against President Trump, which includes allowing public hearings to take place soon. President Trump’s response was a tweet of course, “The Greatest Witch Hunt In American History”.
In Brexit news, the UK received a deadline extension until January 31 whilst the UK parliament approved a new election which will take place in early December. The elections will be interesting given the Labour party doesn’t want to leave, the incumbent Conservatives only just like the deal they’ve agreed to with the EU and no longer have the support of the Irish democratic party, and the UKIP party would happily exit the EU right away with no deal.
On the US-China trade war front, both sides confirmed that “phase 1” is complete and will likely be signed and formally agreed to at the upcoming summit in Chile. The problem is Chile has cancelled the summit due to ongoing social unrest, with no plans for an alternative venue.
Written by Chris Lioutas
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