21 Jun 2013
• The Australian market was enjoying an upward trend earlier in the week, it’s first in a while, before a speech (from the US) and some data (from China) curtailed the gains.
• Markets globally were spooked by Ben Bernanke’s (chairman of the US central bank) speech on Wednesday night where he announced that they might begin to wind back some of their stimulus at the end of the year.
• The impetus for winding back the stimulus is better than expected US growth and much improved economic conditions…..usually this results in markets moving upwards.
• In stock specific news, Lend Lease fell more than 7.5% in one day following the announcement of a major restructuring of its domestic construction and infrastructure business.
• Rio Tinto continued their cost cutting drive with up to 50 middle to senior staff cut from its regional iron ore headquarters in WA.
• We also had the first day of trading during the week of the newly de-merged News Corp entities. News Corp, which will become 21st Century Fox (US pay TV, movies), traded well whilst the New News Corp (newspapers, Fox Sports, 50% stake in Foxtel) fell.
• Oil prices have been steadily rising over the last month or so (as can be seen by higher petrol prices at the pumps) with levels not seen in more than 9 months.
• The iron ore price has also been rising, which is surprising given the poor data that has been coming out of China and concerns regarding the level and quality of China’s growth in the year ahead.
• The Aussie dollar fell earlier in the week in 94 cents against the USD following the RBA’s statement that it is likely to lower rates again – probably in August.
• Then the US central bank’s speech resulted in the US dollar rising strongly and the Aussie falling as low as 91 cents. It has since stabilised at 92 cents against the USD.
• The week began with positive US economic data relating to retail sales, employment data, and the housing market.
• However, this was tempered by a small fall in consumer sentiment after it reached a 6 year high in May and lower than expected inflation numbers, both of which count against an early winding back of US stimulus program.
• Earlier in the week, the International Monetary Fund (IMF) warned the US against an early ending to their economic stimulus program. They sighted pressure on economic growth.
• Whilst their warning seems to have fallen on deaf ears (like announcements from the IMF usually do), others have come out in support of their view.
• In fairness to the US central bank, Bernanke’s speech was intended to prepare the market well in advance of a slow wind back in the stimulus program only if certain conditions are met. It’s highly possible that the conditions won’t be met (key is the unemployment rate falling to 6.5%).
• The largest retailers have put aside competitive differences to lobby both sides of politics in a last ditch bid to impose the GST on online imports, thwart calls to strengthen competition laws, and boost labour productivity. The last two arguments have merit, whilst the call for GST on online imports is farcical….it represents the inability of big retailers to squeeze their overseas suppliers and their poor inventory management record.
• We had news earlier in the week of more disharmonies within the Federal Labor party with rumours swirling of fellow Labor MPs pushing for a leadership spill - the result of extremely poor numbers in the polls for PM Gillard and the Labor party.
• Holden called on its Adelaide workforce to take a pay cut to help its assembly plant remain viable…..the call was denounced by the unions and the South Australian Premier. If the proposal is not accepted there will likely be another large cut to their workforce.
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