29 Nov 2013
• The Australian share market closed lower this week mainly the result of falls in the resources sectors and also some mixed results from US companies who reported.
• Global markets were mixed with the US about flat, but with continued gains out of Europe and Asian markets.
• In stock news, the chairman of Woolworths took it upon himself to tell investors to stop complaining (nice way to get investors on board). The outburst was in response to the market’s continual scrutiny of their expansion into home hardware / improvement, Masters, which aims to compete with Bunnings. Yes, markets are being too short term, but Woolworth’s recent failed management of Dick Smith hasn’t helped them.
• Rio Tinto announced an expansion of their iron ore output at a cost of $3bn less than originally planned. The cost reduction is significant and will be achieved through improved capacity on shiploaders and the extensive use of robotics and automation (i.e. reduction in labour required).
• Oil prices were lower after a deal was struck between Iran and the major powers that could remove further sanctions on Iranian oil. The sanctions have been in place for a decade.
• The Australian dollar has continued to fall this week and traded as low as 90c against the US dollar. The fall was the result of a speech by the governor of the Reserve Bank of Australia and improving US economic data (pushing the US dollar higher).
• Analysts from UBS have released a report which explains why housing credit hasn’t yet bounced despite the housing boom being in full flight. The main 2 reasons are the law of large numbers (i.e. the value of home loans outstanding is so large that an even bigger boom is required to make any inroads) and the fact that households are using the low interest rate period to quickly pay off their loans. This all means that business lending will need to pick up to cover the shortfall.
• Australia’s transition from the investment phase of the resources boom to the production phase is well underway. Latest figures show that there were 63 mining and energy projects committed by companies in October (combined value of $240bn), which was down from 73 projects (worth $268bn 6 months earlier). The fall is largely the result of the completion of several projects.
• A US central bank official told the media that US central bank policy would be accommodative for years. Lower rates for longer.
• Economists have trimmed their forecasts for US economic growth in the short term. Not surprising given they previously had forecasts which were much higher than market expectations. Though they did indicate that they expected the pace of hiring to increase over the next year.
• Politics and polls are usually at odds and the most recent polls are no different. Generally, a political party is clearly preferred in the polls leading into an election (the Coalition more recently), then once rising to power, the polls reverse and the opposition becomes preferred (as was announced this week). Polls are questionable at best, but still perplexing how much polls have changed in 2 months especially given the Coalition won in a landslide.
• The Gonski education reforms are “gonski”. The Federal Government and the states are now at war, especially those states who held out and were promised extra sweeteners to sign on to the reforms. Whilst additional funding is always a nice thing, it won’t get to the root of the problem. Hopefully the Government finds the root.
• There was some support from government departments and private sector think-tanks for raising the retirement age (70 was proposed) and cutting old age benefits. Responses were mixed. Given life expectancy is now much longer than it was when the current retirement age (65) was adopted, there is some logic in the proposal. Cutting old age benefits is questionable and only makes sense if the incentives of superannuation savings are increased (i.e. self-funded retirement).
• Foreign Minister Julie Bishop has refused to back down over comments she made regarding China’s newly declared air defence zone in the East China Sea, despite an angry / threatening response from the Chinese government. And good on her….. The move by China was idiotic to say the least, and at the end of the day, it is in China’s interest to be a strong and valuable economic partner of Australia (i.e. we’ve got what they need). She has the PM’s support.
• The US Senate finally agreed on something (shock, horror) – the rule change will let a simple majority confirm most presidential nominees. Hence, Obama won’t need Republican support to win approval of his nominees to run federal agencies and serve on the US trial and appeals courts. If you’re still in shock….there are 231 Obama nominees pending Senate approval.