27 Sep 2013
• The Australian share market had a choppy week early on before rising strongly in the 2nd half, breaking through the 5300 points barrier for the first time since 2008.
• The market has been buoyed following the federal election result, the delay in the US central bank’s stimulus cuts, and the potential for further RBA rate cuts.
• The US market took another tumble this week as concerns mounted regarding the fiscal cliff and the ability of Congress to agree on a deal to raise the debt ceiling.
• There is a risk that if no deal is reached, the government may be forced to “shut down” – that means public service wage payments would be halted with no spending on services or infrastructure.
• This, in addition to the continued speculation as to when the US central bank will make its first stimulus cut, is weighing on global markets.
• European equity markets were buoyed earlier in the week with the re-election of Angela Merkel as Prime Minister of Germany – the only major leader in Europe to remain in power since the financial crisis.
• In stock specific news, the CEO of Treasury Wine Estates (the wine spin off from Fosters Group) resigned with immediate effect following a disastrous few months for the company. Claims that they flooded the US market with too much cheap wine have damaged the company.
• Whilst David Jones reported a solid full year result in what is a still a very challenged retail environment, and Telstra announced they will axe 1,100 jobs.
• Apple sold a record 9 million iPhones on the weekend debut of its 2 new models – sales almost doubled from the previous record.
• The Aussie dollar fell from its recent 95c high and appears to be settling around the 93c mark. If the US delays the cut to its stimulus program, then the Aussie dollar might remain in this range.
• Economic news was dominated by the continued talk of when the US central bank will begin its first stimulus cut. Consensus is now forming for a December cut or possibly even leaving it until 2014 given the US government needs to sort out its budget problems in the interim.
• US central bank members did their best to again confuse the market (confusion squared….the market’s already confused) with one member emphasising how close the decision to cut was last meeting versus another member’s view that a 1st cut this year was still not certain.
• Favourable data continues to flow from China, which may also be assisting the Australian share market. This time manufacturing data was strong.
• US housing data was positive again, however some concerns have arisen given monthly price gains have been slowing. This has been caused by an increase in mortgage rates (not as closely linked to the central bank’s rate setting like it is here in Australia).
• UBS’s (Swiss investment bank) local arm released an interesting report on the housing market in Australia. One of the interesting findings was that 57% of Australian landlords are leveraged versus 28% in NZ and just 13% in the UK. Some of the difference can be explained by our higher wages than the Kiwis, and by the beneficial negative gearing tax breaks (UK doesn’t have).
• Prime Minister Abbott hosed down speculation earlier in the week that the GST could potentially increase following calls from the Western Australian Premier. The timing of the call was all wrong given it followed the WA government losing their AAA credit rating.
• However, the call will be revisited (speculation is for in Abbott’s 2nd term as PM if re-elected) for the GST to rise to 12.5% and for the base of goods and services covered to be widened. Debt can only be drastically reduced with higher taxes, something we’re stuck with.
• The other big news locally was the NBN Co board all (with the exception of 2) tendering their resignations to the new Communications Minister, Malcolm Turnbull. Rumours swirled that they simply pre-empted his move to remove them.
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