14 Dec 2018
Equity markets push higher on renewed optimism
- Local and global equity markets pushed higher on renewed optimism regarding a trade resolution and the US central bank being potentially less aggressive regarding rate rises.
- JPMorgan Chase & Co is predicting a much better year for US equities in 2019, with expectations of a 17% rise near year, driven by profit growth and investors’ willingness to accept higher valuations as the US Fed slows. Not sure we’re that optimistic, but we are optimistic nevertheless.
- In local stock news, IOOF Holdings share price fell sharply after the regulator moved to disqualify management and members of the board and impose new license conditions following allegations of wrongdoing that emerged during the Royal Commission.
- QBE provided a solid update, flagging a 3 year $130m cost cutting program as well as greater reinsurance for extreme and catastrophic events, for which they had been underdone on in the past. Every insurer should be expecting more extreme and catastrophic events ahead.
- Sonic Healthcare has agreed to acquire a US based diagnostics business for $750m. The US business is one of the leading providers of US anatomical pathology services. The multiple paid doesn’t appear overly demanding. Sonic announced a share purchase plan to help fund the acquisition.
- Both OPEC and non-OPEC members agreed to production cuts, with the lion’s share being delivered by the Saudis. The cut was expected, with oil prices likely to push higher over the next 3-6 months.
- The Reserve Bank of Australia assistant governor suggested that quantitative easing (money printing) was a policy option. Of course it is, we all know that, but that didn’t stop the pessimists and news headlines from running with the story. His real message was one of resilience of the economy and strength in our financial system.
- A key member of the US central bank repeated his call for the Fed to pause its current cycle of interest rate increases, saying the central bank may already be restricting the economy. His estimate of the so-called “neutral” rate of interest is at the current Fed’s cash rate.
- The US jobs market slowed a little last month with 155,000 new jobs added, missing economists’ expectation for a rise of 200,000. The unemployment rate was unchanged at 3.7%. Hourly earnings rose less than expected and consumer credit grew at a solid pace.
- Unsurprisingly, import and export trade data out of China was weak, but actually came in below some pretty heightened market expectations. Imports and exports grew by 3% and 5.4% respectively. Consumer and producer price indices also undershot consensus expectations.
- Chinese iron ore imports continue to decline in November, which is a function of environmental concerns, as many regions are having to curb steel production in order to reduce air pollution.
- In somewhat farcical scenes in the UK, the Brexit vote before UK parliament was delayed as PM May very clearly indicated she didn’t have the numbers to pass it, so chose to postpone the vote. That resulted in a motion of no confidence in her leadership, which she won by just under 100 votes. A big enough majority to retain her title but possibly not big enough to get Brexit agreement through parliament.
- A senior US trade representative said US-China trade negotiations must reach a successful end by March 1 or new tariffs will be imposed. Market didn’t like the deadline; nothing wrong with a firm deadline. Given other news flows, there appears to be increased cooperation between the 2 countries and their trade representatives.
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