10 Aug 2018
Equity markets higher on strong company reporting results
- Local and global equity markets were higher with better than expected company reporting.
- Nearly 80% of US companies have reported results above market expectations, as company reporting season for the largest listed 500 companies nears completion.
- In local stock news, SEEK provided a market update revising lower its forecast for profit and revenue growth, citing their plan to invest more heavily in technology and innovation. Operating costs in their Chinese and broader Asian divisions have increased considerably whilst the company has written down the value of its Brazil and Mexico assets.
- Amcor has announced they will take over US based flexible packaging company Bemis in a US$6.8bn all scrip deal (ie. no debt). Amcor shareholders will own 71% of the combined company going forward. The deal makes plenty of sense, but the financials are well below Amcor’s historic deal discipline.
- Wesfarmers has announced the sale of its 40% interest in the Bengalla coal mine to New Hope for $860m. The deal follows the company’s sale of the Curragh coal mine in December 2017 for $700m. Wesfarmers building a war chest leading into the Coles divestiture.
- ResMed reported 4th quarter revenues up 10% and earnings up 23% on the same period last year as devices and masks achieved double-digit sales growth. Gross margins declined slightly, but still remain high.
- The Chinese appear to have devalued their currency as a way of punishing the US for the escalating trade tariffs and rhetoric. The Yuan fell to its lowest value since May. The Chinese don’t actually import a whole lot from the US so will eventually run out of US goods to tariff, but have plenty of other tools at their disposal.
- The Reserve Bank of Australia left rates on hold at 1.50% for the 22nd consecutive meeting as expected. The bank finally saw the light on inflation lowering their forecasts for this year down to 1.75%, from 2-2.25% previously.
- Australian retail sales showed a 0.4% uplift in June, which was slightly ahead of expectations. Retail sales growth remains anaemic due to a constrained household budget.
- The US added 157,000 in July, coming in below the heightened expectations by economists. However, jobs growth for June was revised up to 248,000 from 213,000. The unemployment rate remains around its lowest level in nearly 50 years. Wage growth remains sluggish.
- The US trade deficit widened 7% in June, the first increase in the deficit in 4 months. US exports fell with the biggest drop in new cars and trucks, whilst imports rose as the US imported the most oil in 3.5 years. Imports on foreign steel aluminium also fell.
- German manufacturing orders fell 4% in June vs May, coming in much lower than economist forecasts. The fall was led by a large drop outside of the Eurozone, with some speculating mounting trade tensions as the cause.
- The Bank of England governor has said that there is an uncomfortably high chance of the UK exiting the EU without a transition agreement, which will negatively impact the economy. The British trade minister confirmed the same concerns ascribing a 60% possibility to such an outcome. Maybe time for a 2nd referendum on Brexit.
- The trading arm of China’s state-owned oil major Sinopec has suspended crude oil imports from the US due to the growing trade spat. Another report seemed to indicate that China (Iran’s biggest customer) has rejected a US request to cut imports from Iran.
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