22 Nov 2013
• The Australian share market trended lower this week whilst the US market looks likely to finish flat even though the market reached an all-time high during the week.
• Asian markets were mixed with Japan up and both Hong Kong and India falling. Asian markets started the week strongly after China released a more detailed reform plan outlining more foreign investment in the financial sector.
• European markets were also mixed with broader Europe taking a breather following strong performance over the last few weeks.
• By and large, share markets globally were disappointed by the inaction to come out of China’s Third Plenum (meeting to set reform agenda over the medium to longer term) – for some reason markets were expecting very clear action from a party who has historically made grand statements with very little detail.
• The Australian government launched a $5.3bn 20 year treasury bond with global central banks and the world’s biggest bond funds shrugging off controversy over the government’s debt ceiling. Initial expectations were for an issue size of $3.5-$4bn.
• In stock news, contractor Worley Parsons found themselves in deep trouble falling nearly 26% in one day after downgrading profit guidance for the full year. The downgrade came only a month after they reaffirmed their previous guidance.
• The Aussie dollar has been trending lower this week falling more than 2 cents against the US dollar. The RBA continued to indicate that it was uncomfortable with current levels and signalled the possibility of another rate cut (though unlikely) or possibly intervening in currency markets.
• According to the Organisation for Economic Co-operation & Development (OECD), the Australian economy is vulnerable to high labour costs and house prices, and is too weak to weather deeper federal budget cuts.
• The OECD impressed that whilst Australia has one of the developed worlds lowest level of government debt, our global competitiveness has been blunted over the past 13 years by the 2nd fastest labour cost growth of any developed country.
• The US central bank chairwoman elect, Janet Yellen, reiterated that central bank stimulus would likely continue while the economy remains fragile. Share markets were buoyed by her rhetoric.
• The prices of goods imported to the US declined more than expected in October. On the same time last year, import prices are down 2% - overall, the numbers suggest economic sluggishness overseas.
• The US housing market continues to stagnate with November numbers short of expectations and October numbers revised downwards. Builder sentiment is waning, political and central bank uncertainty is not helping.
• The Eurozone is pushing ever closer to deflation after the most recent inflation reading came out at just 0.7% - goods price deflation is a concern.
• The Federal Government is still considering how to respond to Indonesia following revelations that Australian spies tapped the Indonesian President’s, and other senior government officials, phone lines 3 years ago. Nothing wrong with the phone tapping given it is general practice, but getting caught is embarrassing enough to warrant some sort of an apology.
• The Qantas vs Virgin war has erupted publicly and politically with Virgin Australia threatening to sue Qantas over an email sent to Qantas staff by their CEO. The email sited that Virgin didn’t care whether they made a profit or not, and that they were only interested in bringing Qantas down.
• While the contents of the email may have seemed fanatical, Qantas does have a point – the Qantas Sale Act prevents foreigners owning more than 50% of the airline amongst other restrictions. Virgin Australia on the other hand, is now majority owned by foreign competing airlines that would love nothing more than to see Qantas clipped. Qantas CEO Joyce is lobbying Canberra for changes.
• The Abbott government’s carbon tax repeal bills have cleared the lower house, setting up a Coalition showdown with the Senate in December. The Coalition stated they were honouring its word following the previous government’s “contractual breach” in introducing the tax after promising not to so during the 2010 election campaign. The Coalition also believes that the tax doesn’t work and also destroys our global competitiveness.