20 Dec 2013
• Wesfarmers has begun a selling spree selling their 40% interest in the WA based industrial gas producer and supplier ALWA, followed by the sale of their insurance business to IAG (ie. NRMA). Net proceeds are close to $2bn. They retained the insurance broking business which may be worth another $1bn plus. It will be interesting to see what they do with the proceeds.
• Local and global share markets traded sideways for much of the week before rising strongly, as markets locally and globally awaited the US central bank’s decision regarding tapering.
• The decision by the US central bank to make their first small cut to stimulus was received well by markets globally, especially the US market, given the Chairman strongly emphasised their intention to maintain extremely low interest rates for much longer.
• The purchase by IAG gives them increased scale and also removes a competitor in Coles Insurance, which has been growing strongly. The purchase price looks very top-heavy, so IAG will need to extract synergies to make the deal worthwhile over the longer term.
• Shares in real estate classified services REA Group (realestate.com.au) fell sharply after their CEO resigned to pursue an opportunity outside of the company. He was highly regarded. This follows the departure of their CFO recently.
• The Aussie dollar continued to fall during the week hitting a low of 88c following RBA Governor Stevens re-iterating his preference for the Aussie at US$0.85. The US central bank’s decision to taper pushed the US dollar higher, thus putting further downward pressure on the Aussie. This is likely to continue over the next 12 months.
• Following the Federal Government’s mid-year economic and fiscal outlook, there looks like there could be a further $50bn plus deterioration in the bottom line over the next 4 years. This could see gross government debt peak at $452bn in 2016/17.
• The household saving rate jumped in the 3rd quarter this year to the highest level since mid-2012. This shows that consumer confidence still isn’t healthy.
• China’s manufacturing sector continued to expand in December but at the slowest rate in 3 months.
• US industrial production rose strongly in November from October levels, surpassing pre-GFC levels for the first time. US productivity rose 3% in the 3rd quarter, the fastest rate since the last quarter of 2009. The US economy is going gang-busters.
• The US home builders index rose strongly to the highest level in 8 years implying that homebuilders are positive about future sales trends. This was in addition to US housing starts (new residential construction) which rose 22.7% in November to a 1.09 million annual rate – a 6 year high.
• European share markets were buoyed after data showed manufacturing activity in December in the Eurozone expanded at the fastest pace since May 2011.
• In Japan, data showed business sentiment was strong with manufacturers at their most upbeat levels in 6 years.
• The Abbott government has abandoned its target of returning the budget to surplus in 4 years (quite frankly, they had no chance) blaming the profligacy of its Labor predecessor. Apparently, the deeper the new government digs, the worst it gets
• The business community has demanded that Treasurer Hockey swiftly repair the budget given forecasts of more than $120bn in deficits over the next 4 years and no surplus for at least a decade. Expectations are for deep spending cuts and savings over the course of the next couple of years.
• Woodside Petroleum has come under pressure of late from the WA government, special interest groups, and the unions, since it made its decision to shelve the onshore Browse gas project in place of plans to process gas offshore. The onshore project would’ve cost more than $80b, almost double the previous estimate, and they would’ve have lost $1bn on the project. Goes to show how much labour and industrial workplace reform are desperately needed.