14 Mar 2014
• Markets were down across the board following concerns regarding continuing poor data out of China and the potential escalation in the Ukrainian/Russia stand-off.
• Leighton Holdings advised that HOCHTIEF, a majority shareholder in the company, intends to make a proportional offer to acquire 3 out of every 8 shares held by Leighton shareholders. If all Leighton shareholders accept the offer, HOCHTIEF will increase its stake in Leighton from 58.77% to 74.23%. Leighton’s independent directors support the offer. The CEO and CFO have resigned.
• The iron ore price fell to levels not seen since the global financial crisis. Fears arose regarding a slow-down in China with weak trade data and concerns that Chinese steel mills may close en masse given the government’s plan to reduce support.
• As a result of the sharp fall in the iron ore price, the mining sector came under pressure with the likes of BHP, RIO, and Fortescue down strongly.
• The Aussie dollar fell following concerns that the Ukraine/Russia crisis may escalate further with reports that the vote for independence in Crimea (and closer alignment with Russia) will still go ahead. The interim Ukrainian government, the EU and the US have stated that the vote is constitutionally illegal and against International Law.
• The gold price has had competing forces of late, with the Ukraine/Russia crisis pushing it higher and the global deflation story pushing it lower. The crisis concerns have won this week.
• Locally, business conditions went backwards in February due to weakness in the manufacturing sector and lagging confidence levels. The business outlook for employment was particularly weak.
• The unemployment rate held steady in line with expectations. In a change to data, full-time employment rose strongly whilst part-time employment fell.
• The Reserve Bank of NZ raised interest rates by 0.25%, in what is expected to be a series of quick fire interest rate rises.
• The US economy added 175,000 jobs in February, which was above expectations. However, given the recent run of poor job figures, the unemployment rate rose to 6.7% from 6.6%.
• In contrasting news, US unemployment claims fell to the lowest level in 3 months. Unemployment claims are now near pre-recession levels.
• Chinese exports in February fell 18.1% on the same period last year. The fall was large enough, but was also in stark contrast to the expected 5% increase in exports.
• Chinese imports rose by 10%, ahead of expectations. Overall, the data showed China had a $23bn trade deficit for February, a huge reversal from the $32bn trade surplus in January. This was the main cause of the iron ore price fall.
• The Bank of Japan made no changes to its existing policy leaving interest rates unchanged. Its assessment of the economy also remained unchanged.
• In a positive move, the Chinese central bank governor stated he expected the lifting of its control on banks’ interest rates in one to two years.
• Federal cabinet will soon sign off on a white paper on the federation, paving the way for Tony Abbott to propose changes aimed at reducing inefficiencies, including duplication between state and federal bureaucracies. The Prime Minister will seek the input of the states and territories on the scope of the white paper at the next meeting of the Council of Australian Governments. The PM is hoping the Liberals win the upcoming SA and Tasmanian elections, which will make getting the changes through much easier.