10 Jan 2014
Qantas Airways noted the announcement that a credit rating agency had cut their credit rating by 2 notches to junk status even in light of the company’s substantial cash reserves and undrawn debt facilities totalling approx. $3bn. The agency mainly cited the increased competition by Virgin. Shares actually rose.
The Australian share market finished lower this week due to the mining sector which fell off the back of poor Chinese data.
Overseas markets were a mixed bag with the US likely to finish flat, India and Japan lower, with the UK Lower and Europe slightly higher.
In stock news, the ongoing takeover saga of Commonwealth Property Office Fund (CPA) by Dexus and GPT looks to have come to an end, with Dexus the victor. Sense prevailed (rather than the 2 buyers entering a bidding war) with GPT dropping their offer in exchange for some CPA’s assets.
The Aussie dollar fell to 88c against the US dollar before stabilising around the 89c mark. The RBA (and much of the non-mining sector) are holding out hope that the recent stability at 89c marks the next leg lower.
Strong growth in house building has helped drive the broader construction sector to its 3rd consecutive month of expansion in December, after several years of decline.
The number of job vacancies in Australia fell in the November quarter, with the biggest drop coming from the public sector.
The US trade deficit shrank to a 4 year low – the combined effect of moving production back to the US (from cheap labour countries) and cheaper energy sourced locally (ie. shale gas).
The US manufacturing sector continues to power ahead with 2 key readings moving to 44 and 11 month highs respectively.
In addition, the US labour market continues to grow positively with unemployment claims continuing to fall.
In contrast to the US manufacturing sector, poorer manufacturing data was reported in both Europe (UK and France) and China.
Eurozone retail sales increased in November at the fastest pace in 12 years. However, the unemployment rate remained high at 12.1%, with youth unemployment at 24.2%.
The ACCC (the national competition regulator) has urged PM Abbott to sell off assets such as Australia Post and Medibank Private and push for the privatisation of state-owned energy companies, in order to maximise productivity and create the greatest benefit to consumers. The comments hit a nerve with some, especially the Australia Post suggestion. Whilst Abbott may agree with the ACCC, there’s no way he would make that move in his 1st term.
Australia risks missing out on the digital investment boom as local tech companies increasingly move their operations overseas (Asia, UK) in search of better regulatory incentives, including tax breaks for employee share ownership and research and development. Government review of our tax system can’t come fast enough!
Dr Janet Yellen was confirmed by the US Senate as the next Federal Reserve (central bank) chairman. No real surprise given there were no other candidates and the strong support she received from the markets given their need for consistency and stability (she is very much of the same mould as outgoing chairman Bernanke).
A President Obama backed bill to renew unemployment benefits for 1.3 million Americans narrowly passed the US Senate for consideration and approval by the lower house. If passed, the bill would extend recently ended unemployment benefits for 3 months at the cost of $6bn. If not passed, a further 2 million Americans will lose their benefits in the 1st six months of 2014.