10 Jul 2015
- Markets were hit by the continuing uncertainty in Greece and the sharp falls in the Chinese equity market.
- Australian shares finished near flat for the week following a bumpy ride.
- Surprisingly, US and European share markets looked likely to finish up for the week on the back of a likely deal in Europe.
- Trading in the US stock market was interrupted this week after a computer glitch on the New York Stock Exchange forced markets closed for 3.5 hours. Conspiracy theorists came out in droves.
- Chinese shares continued to tumble on the back of strong selling and forced selling, given the amount of margin loans Chinese investors used to push the market to near all-time highs. None of this should be a surprise given the lack of sophistication/education amongst Chinese investors and lack of liquidity in their market.
- In local stock news, National Australia Bank announced it will pursue a demerger and IPO of Clydesdale Bank (UK) in order to focus on their Australian and NZ businesses.
- Telstra is planning to have spent more than $5bn over the three years to 2017 as it expands its mobile and digital network. Plans are in place to expand its 4G footprint to 99% of Australians, which will be double that of their nearest competitor.
- The Australian dollar hit a six year low against the US dollar reacting to the Greek crisis and the Chinese equity market implosion, neither of which really affect the Australian dollar. Though the Chinese equity market fall has brought the spotlight back on the slowing Chinese economy.
- Oil and iron ore prices fell sharply on concerns regarding the health of the Chinese economy.
- The RBA left the cash rate unchanged, preferring to wait and see how the last rate cut makes its way through the economy. They’re also waiting to see when the US central bank raises rates. Given underlying economic conditions, more rate cuts are required, but a US rate rise will force our dollar lower, thus assisting the RBA.
- Australian retail sales data disappointed, with growth flat in May ex-food sales. Growth was strongest in NSW, and in household good retailing and food retailing. You can’t have retail sales growth without wages growth.
- Australians are paying off their credit cards and saving more, but HECS debt is at a 14 year high, according to a report. The report also showed that 4 out of 10 households are now debt free. The HECS debt can be arrested by lowering the income level at which the debt becomes payable (now $54,000) and raising entry requirements for new students.
- A US jobs report for June showed a strengthening economy with 223,000 jobs added in June. The unemployment rate fell to 5.3%, the lowest since April 2008. However, the market focused on other things in the report like flat wages and the low labour force participation rate.
- Greek citizens voted NO in the referendum over the weekend. This vote was a NO to continued austerity without assistance and without debt forgiveness. The populous are clearly in favour of remaining in the Eurozone. The NO vote gave PM Tsipras more power. A formal plan was submitted by the Greeks overnight with negotiations to take place over the coming days. It looks likely a deal will be done.
- The Chinese government has been forced to intervene in the Chinese equity market after previously relaxing rules which led the market into bubble territory in the first place. They have suspended IPOs, cut interest rates, allowed the banks to lend more freely, relaxed collateral rules on margin lending, directly bought shares themselves, halted trading in 72% of the market and forced brokers to start buying shares. When you engineer a share market rally, you should be aware of the consequences.
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