19 Jun 2015
- Equity markets endured a see-saw week as Greek debt/aid negotiations worsened and investors waited in anticipation for forward guidance from the US central bank on rates.
- Asian and European markets fell on the uncertainty, whilst the Indian market rose.
- The US equity market pushed higher, buoyed by M&A activity and Janet Yellen’s guidance that rates will rise very slowly going forward.
- The financials sector pushed the Australian share market higher for the week as investors saw value in the banks.
- In local stock news, Westpac Banking Corp announced it would sell down part of its shareholding in BT Investment Management. The move makes sense given Westpac’s intentions to be smaller shareholder in BT, and the sell down comes at a time when BT shares are trading at high levels.
- Insurance Australia Group (IAG) announced it entered into a strategic relationship to establish a long-term partnership with Warren Buffett’s Berkshire Hathaway, in one of the strangest deals seen in Australia. Berkshire will pay a low $500m for 20% of IAG’s premium revenue (thus diluting earnings) whilst taking a 3.7% stake in IAG, with an option to take it to 14.9%. It likely means Berkshire takes IAG out at some stage, or gains enough local intel to compete directly against IAG.
- Woolworths announced CEO Grant O’Brien will retire from the company, with a global executive search process now in place. He will remain CEO until a replacement is found. Likely he left on his own terms before he was pushed, coming under ever increasing pressure from shareholders. Shares bounced up on the news.
- The Australian dollar pushed higher this week against the US dollar as the US central bank indicated that rate rises after the first will be slow and steady. The market has also pushed back their expectations for the first rate rise to the December meeting.
- The US central bank left rates unchanged at their June meeting as expected. They indicated that a rate rise was likely at some point in the second half of this year, but that it would be solely data dependent, and that rate rises thereafter would be slow and steady. Their first rate rise since June 2006 is now likely at the September or December meetings.
- Positive US economic data continued with consumer sentiment improving strongly and job openings jumping to the highest level since 2001.
- European economic data was mixed across the board, whilst Chinese inflation fell to a low 1.2%.
- The Greek/European Union debacle continued this week with parties no closer to a resolution. The IMF chucked a tantrum and wants nothing to do with the Greeks, whilst the European Central Bank (ECB) won’t cut a deal without the IMF’s involvement. Greece has no money to pay upcoming payments due to the IMF and the ECB. In addition, their economy can’t function without external finance. The Greek PM Tsipras has become hysterical resorting to emotional statements, whilst a sense of calm has washed over German PM Merkel.
- The Federal Government and the Greens struck a deal to get the Government’s changes to the pensions asset test through parliament, saving the budget $2.4bn, after the Labor party blocked the proposed changes.
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