15 Nov 2013
• The Australian share market finished the week flat as investors took a breather following a strong rally over the past 5 weeks or so.
• The US market trended sideways for most of the week as the market awaited US Fed Chairwoman select Janet Yellen’s speech.
• Yellen vowed to do whatever it takes to strengthen the US economy. This means central bank policy will remain easy for some time to come, thus putting a buffer under the US and global share markets.
• Asian markets were a mixed bag with Japan up strongly, Hong Kong trending sideways, whilst India fell. European markets were flat overall following similar strong gains to the Australian markets over the last 5 weeks.
• In stock news, Orica (chemicals and explosives) and Incitec Pivot (fertiliser and explosives) both had a bumper week with the market taking a strong liking to their result announcements.
• Toll road operator Transurban announced a very smart acquisition – they will buy all of the Sydney Cross City Tunnel’s senior debt for $475m (a discount). The debt has an outstanding value of $600m, but more importantly, puts them in the driver’s seat to acquire the tunnel.
•The Australian dollar has been choppy all week with a downward trend now emerging.
• Australian home loan values recorded their largest monthly gain in September in more than 4 years (and 2nd highest level on record) with broad strength from investors and owner-occupiers. Troublesomely, first homeowner share of total loans dropped to another record low of just 7.8%.
• US economic data turned more positive after a lacklustre couple of weeks. 3rd quarter economic growth (GDP) was 2.8% versus expectations of 2% - impressive given the government continues to tighten its belt.
• The number of US jobs increased by 204,000 in October, well higher than expected, as job growth in the private sector was strong – positive signal that business confidence is increasing.
• However, US unemployment continues to hover around the 7.3% mark and isn’t falling quickly enough – jobs are being created, but not at a fast enough pace to counter those who are disillusioned and have exited the workforce.
• Positive signals continue out of China with data showing a better than expected 5.6% jump in exports combined with a rise of 7.6% in imports. The export numbers are a key indication of growing global demand.
• The European Central Bank has discussed potentially moving the overnight deposit rate (the interest rate retail banks receive for depositing their money with the central bank) to negative to encourage retail banks to lend – i.e. retail banks will have to pay for the privilege of depositing their money.
• The federal Australian parliament sat for the first time this week, and an interesting week it was. Bronwyn Bishop was elected as speaker of the house – all sides of politics agreeing that this was a good selection, though backing it up with some back-handed compliments regarding the new speaker. She has been a very busy lady this week with members from both sides of the floor on fire with their rhetoric…..who said a break heals all wounds?
• We then had our own debt ceiling ultimatum with Treasurer Hockey threatening to cut spending even harder in the May budget if Labor and the Greens didn’t allow him to increase the ceiling from $300bn to $500bn. The opposition parties have proposed $400bn in the Senate which the Coalition has shot down. To put it simply, the Coalition is trying to avoid a US style shutdown whilst the opposition parties are attempting to maintain their relevance.
• The Chinese Communist Party’s 3rd Plenum (a very important meeting amongst China’s top leaders regarding the party’s reform agenda) took place this week. Markets were disappointed by the outcome, but some key terms used were “overhauling the bureaucracy and legal system”, “allowing the market to play a decisive role in the economy”, “relax investment access in the context of globalisation”, and that “reform is the key to solving all problems”…..hopefully Australian politicians took note of the last comment.