4 Sep 2015
- Markets remained volatile this week as investors fretted over when the US will raise rates, in light of global growth concerns.
- The Australian market continued to trade lower on falling commodity prices and concerns regarding Chinese demand for our resources.
- European markets actually held up reasonably well, assisted by comments by the European Central Bank chairman who indicated that accommodative policies may need to be extended.
- In local stock news, CIMIC Group (previously Leighton Holdings) has been selected as the preferred contractor to design and construct Sydney’s $5bn new M5 motorway in a joint venture with two other firms. The new M5 tunnel, Stage 2 of WestConnex, will run from the existing M5 east at Kingsgrove to a new interchange at St Peters.
- Myer shares plunged after the group announced a capital raising to help fund the company’s five year turnaround plan ($600m spend) as the retailer continues to struggle. The plan includes trying to figure out what customers want and improving the customer experience (this seems overly obvious)…
- Banks say a growing number of customers are getting in touch to change their investor home loan to an owner-occupied loan, after interest rises on investment loans revealed gaps in the banks’ records. In contrast, ANZ and NAB have in recent months reclassified billions of dollars worth of owner-occupied loans as money borrowed by investors. It may be time for the banks to update their record keeping systems.
- The Australian dollar fell further this week on the back of falling commodity prices and concerns regarding China’s growth transition. The dollar fell below 70c against the US dollar, falling to its lowest level in more than six years.
- The RBA chose to leave rates on hold at 2% at their September meeting, but remained ready to ease policy further if needed.
- Australia’s terms of trade (largely, the difference between exports and imports) fell for a sixth consecutive quarter to be over 30% lower than the September 2011 peak. The terms of trade are now at their lowest point since the third quarter of 2006, with further declines expected given falling commodity prices.
- Australian credit growth in August rose slightly, above expectations. Growth was driven by a rebound in business credit, with slower expansions in house and personal credit. Investor housing credit continues to outpace credit to owner occupiers. However, recent data and leading indicators all point to a slow-down in demand for investment property loans.
- Second quarter Australian economic growth came in weaker than expected on the back of weaker corporate profits, soft sales volumes and sluggish demand. The result pushed annual economic growth down to 2%. National income is being severely impacted by declining commodity prices and weak wages growth.
- Surprisingly, the Australian manufacturing sector expanded for the second straight month as residential building activity and strong demand for food and beverages continues to benefit suppliers. In contrast, US and Chinese manufacturing data softened.
- The US central bank continued to send out mixed messages regarding when they are likely to raise rates. Some members would prefer for inflation to be higher before moving, whilst others prefer to wait to see real evidence of consistently higher inflation.
- The Federal Government has indicated that it intends to take a comprehensive tax reform package into the next election. In order for there to be income tax cuts, the GST rate will need to be increased and GST will need to be charged on a broader range of goods and services. Spending cuts alone won’t be sufficient.
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