27 Nov 2015
- The Australian share market fell this week as large blue chip stocks continued to struggle, not helped by a fall in commodity prices.
- Global markets mostly finished higher, assisted by the potential for more stimulus from the European central bank.
- Yet another US corporate mega deal hit the headlines, with Pfizer and Allergan entering into a reverse merger (reverse for tax purposes) in a deal worth $222bn which will create the world’s biggest drug maker by sales. The move will result in operational savings of $2.78bn and will allow Pfizer to lower their tax rate given Ireland’s corporate friendly rates.
- In local stock news, CIMIC Group’s construction company, Leighton Contractors, has signed a contract for the design and construct element of Sydney’s $4.3bn new M5 motorway. The project will generate revenue of approx. $1.5bn over four years.
- Sydney Airport announced that passenger traffic continued to perform strongly during October. This was driven by inbound international travellers, with China, Hong Kong and the Philippines leading the way.
- Rumours are swirling that two private equity firms are considering a joint bid for Big W. Woolworths denied they have received any offer. If the offer were to eventuate, it would allow Woolworths to put more funds to work in the grocery, liquor and hardware businesses.
- Transurban had a busy week, announcing an agreement to extend their US toll road in Virginia before announcing the acquisition of Airportlink in Brisbane for $2bn. Transurban is raising equity in order to fund the acquisition.
- Oil prices rose on concerns regarding the conflict in Syria. In addition, news headlines appeared to suggest that the Saudis were ready to adjust production lower in order to reduce supply and put upward pressure on oil prices, something that their fellow OPEC members have been begging for.
- The US dollar rose toward a 13 year high as investors continued to anticipate that the US central bank will raise rates for the first time since June 2006 at its December policy meeting.
- Australian housing affordability has deteriorated significantly over the last year, with Sydney at the worst levels of affordability in 14 years. Households with two income earners spent an average of 29.3% on their monthly income on mortgage repayments in October.
- Australian construction work has fallen sharply, in the largest quarterly fall since 2001, as engineering work dries up amid slowdown in mining investment. But residential building lifted to a new high, as low interest rates continue to buoy construction.
- The Japanese economy contracted in the September quarter which put the economy into a technical recession (i.e. two consecutive quarters of negative growth) for the fourth time in six years. Sluggish demand growth and continuing doubts about PM Abe’s economic revival plan aren’t helping.
- Eurozone inflation came in at a measly 0.1%. This, along with other recent data, has confirmed that the economic recovery has lost momentum. More stimulus from the European central bank is expected.
- Comments from a number of members of the US central bank, along with minutes from the quarterly meeting, suggested that the path of interest rate increases is likely to be gradual. This helped soothe some investors’ fears.
- US third quarter economic growth was revised upwards, in line with expectations, from 1.5% to 2.1%. A big tick for the growth momentum in the US economy.
- The Paris terrorist attacks have brought a renewed focus on security spending in the European region. Currently, the UK is the only NATO member in Europe that is reaching its target to spend 2% of GDP on defence.
- Turkey shot down a Russian fighter plane bringing another dimension to the fighting in Syria and Iraq, as diplomatic tensions rose. The plane was shot down after entering Turkish airspace. The Turks maintain they provided plenty of warning, whilst the Russians maintain they heard no warnings. Both are largely on the same side in the fight against ISIL, but the event has opened old wounds.
- Reports out that China’s aluminium and nickel producers have asked Beijing to buy up surplus metal, which would be the first coordinated effort since 2009, in order to revive prices suffering their worst rout since the GFC. Let’s hope the Chinese government ignores the ridiculous request from inefficient, loss making and mass polluting local producers.
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