4 Oct 2013
• The Australian share market took a breather earlier in the week before trending sideways for most of the rest.
• This was in line with global markets given the concerns arising regarding the US Government shut-down and its broader implications in light of the upcoming debt ceiling negotiation.
• News flow from China will be slow as they have entered a week’s worth of public holidays – now that’s efficiency (central planning) at its best…
• In stock news, Leighton Holdings had a very mixed week to say the least. They won 2 large contracts earlier in the week, before being embroiled in alleged corruption in the company’s past under previous management. The stock lost all of its gains from the last few weeks.
• The Aussie dollar continues to hover around the 93-94 cents market against the US dollar. Forecasts are that it may now stay above 90c for the remainder of this year given the issues facing the US.
• The iron ore price continues to remain elevated (ie. above US$130 a tonne) given a pick-up in demand from China, whilst gold remains in the mid US$1,250-$1,350 per ounce range.
• Australian inflation is expected to remain benign especially given the higher Aussie dollar. The rate for the 12 months to September was 2.1% (the very bottom end of the RBA’s target range of 2-3%).
• Australian housing credit continued to grow with credit growth up 4.7% on this time last year – mainly led by investors rather than owner-occupiers.
• In contrast, total deposit growth slowed sharply to flat on the previous month’s growth. Deposit growth on this time last year is at its weakest since July 2010. Obviously the result of low deposit rates.
• Australia’s manufacturing sector has expanded for the first time in 2 years, breaking its longest contracting period in history.
• US inflation continues to be well and truly under control with prices rising only 1.2% over this same time last year. However, one year inflation expectations rose to 3.3% - expectations alone can cause inflation to rise significantly.
• US consumer sentiment also fell and was below the figure expected by economists. In contrast, there was a flurry of very positive business and manufacturing data released.
• One of the implications of the US Government shut-down is that government economic and statistical departments are closed – that means no data is compiled or released. Global markets trade off this data.
• Italian politics was in the headlines again as ex-PM Berlusconi was threatened with expulsion from parliament following his conviction for tax fraud. As a result, he then removed his ministers from parliament meaning the Government has collapsed.
• Later in the week, news flow was that all involved sat down over a nice dinner (breaking bread and guzzling wine) whilst watching the football, minus the scantily clad women (usually courtesy of Berlusconi of course), and brokered a deal. They are all now best friends again.
• Australian Federal Budget documents released showed an $18.8 billion deficit in financial year 2013. The Federal Treasurer and Finance Minister took the opposition to task over their 6 years of management.
• The problem the Coalition Government now faces is to how to reduce the deficit whilst stimulating the economy (which invariably involves spending and taxing more). The Government has shown its commitment to infrastructure spending, but this may need to be delayed.
• An amusing piece regarding the not so amusing US government shut-down – some government employees had to hand in their Blackberries, whilst others could be jailed if they are caught doing work whilst the government is in shut-down….
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