2 Nov 2018
Equity markets push higher as value reappears
- Local and global equity markets pushed higher this week as investors began to put cash back to work again.
- The largest 500 listed US companies are on pace to post a 25% rise in 3rd quarter earnings with over half of the constituents having reported. However, the market has turned their attention to revenue growth to better gauge the sustainability of those earnings.
- Alphabet (Google) and Amazon’s quarterly results came in below analyst expectations putting further downward pressure on their stock prices. Most of the issues cited by management are temporary or one-off in nature.
- In local stock news, ANZ rose after it announced a full year cash profit fall of 5% on last year’s number, but the fall was much lower than the market expected.
- National Australia Bank reported a 14% fall in full year cash profit as restructuring costs and repayments to customers rose. Excluding the one off items, cash earnings fell 2% whilst the dividend was held steady.
- Commonwealth Bank rose after it announced that it would sell Colonial First State Global Asset Management to Japanese Mitsubishi UFJ Trust for $4.13bn. The fund’s management arm didn’t want to be part of the demerged wealth management business and the Japanese were willing to pay well over for the business. It helps when you can borrow at near 0% for 10 years.
- BHP will return asset sale proceeds to investors after the recent divestment of its US shale oil & gas assets. The net proceeds of $14.4bn will be split between a special dividend and a share buy-back.
- The Aussie dollar reversed recent trends and pushed higher after the release of trade data which showed a bumper trade surplus in September
- US economic growth slowed less than expected in the 3rd quarter as we saw the strongest consumer spending in nearly 4 years and a surge in inventory investment. US consumers and businesses are bringing forward consumption and supply before tariffs kick in and push prices higher.
- The US central bank’s preferred measure of inflation only increased by 1.6% last quarter, much less than the 2.2% expected by economists. A near 8% decline in business spending didn’t help, no doubt affected by President Trump’s trade policies.
- US consumer spending rose for the 7th consecutive month in September. But income recorded its smallest gain in more than a year amid moderate wage growth, which means the current rate of spending, is unlikely to be sustainable.
- US consumer confidence hit an 18 year high, coming in above market expectations.
- Eurozone 3rd quarter economic growth slowed quicker than most anticipated, following a rather benign 2nd quarter number. Year on year growth slowed to 1.7%.
- China’s manufacturing sector grew in October at its weakest pace in over 2 years, hurt by slowing domestic and external demand.
- A report indicated that the US is preparing to announce tariffs on all remaining Chinese imports by early December if talks next month between President Trump and Xi falter.
- US mid-term elections will take place next week, with predictions firming that the Democrats will win the lower house whilst the Republicans will retain the upper house. This will make it more difficult to get things through and may even empower the Democrats to try an impeach President Trump, which is unlikely to succeed given the upper house must sign off on any impeachment.
- German Chancellor Angela Merkel has announced this will be her last term in power following her government suffering a major setback in regional elections with a big swing away from her party.
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