13 Apr 2017
Rising geo-political tensions halt equity markets
- Equity markets globally finished lower as investors took a disliking to rising geo-political risk.
- In local stock news, BHP Billiton’s share price rose strongly on corporate news before falling away as the iron ore price fell. The strong rise earlier in the week was the result of a significant shareholder urging the company to unify its dual-listed structure and to spin out its petroleum division in order to unlock shareholder value.
- JB Hi Fi delivered a strong 3rd quarter trading update with sales up strongly across JB stores and The Good Guys on track to at least meet guidance. Synergies from The Good Guys acquisition have yet to come through and could be bigger than guided.
- TPG Telecom has announced that it will spend $1.9bn over 3 years on Australian mobile network to become the 4th major player in Australia. Telstra’s share price fell in response to the news in light of increased competition.
- The iron ore price continued to fall as demand begun to slow in light of significant stocking by the Chinese earlier in the year. In addition, there’s been a marked increase in the appearance of short sellers (betting against price rises).
- In contrast, oil and gold rallied in light of rising tensions in the Middle-East and risks of US escalation with North Korea. In addition, Libya’s biggest oilfield went offline whilst Russia and Saudi Arabia both signalled they are weighing up an extension of OPEC led production cuts.
- The Aussie dollar fell earlier in the week on falling iron ore prices before finishing the week stronger against the US dollar following President Trump talking the US dollar down and a positive Australian jobs report.
- Australian business conditions jumped in March to highs not seen since before the global financial crisis, with sales, profits, and employment all at levels that usually lead to higher economic growth in future.
- The Australian economy added nearly 61,000 jobs in March, with more than 74,000 full-time jobs created. A bumper result to say the least. A rise in the participation rate (those working and looking for work) kept the unemployment rate steady at 5.9%.
- US March jobs data disappointed, coming in well below consensus estimates, and was the smallest advance since May 2007. There were also downward revisions to the January and February data. Might be weather related, given the unemployment rate fell to a near decade low.
- The US central bank noted in their March meeting minutes that they would gradually shrink their balance sheet (reverse of money printing), which the market is predicting will happen later this year. This approach would put less pressure on them to raise rates more quickly if required.
- Regional unemployment in the Eurozone declined to 9.5% whilst Eurozone retail sales came in above expectations. Looks like the deflation threat is now gone.
- Geo-political tensions are rising following the US’s missile attack on an airbase in Syria, which was identified as the source of the recent chemical weapon attack. Russian know-how / involvement of the chemical attack is now suspected. The Russians and Iranians denounced the US’s move.
- President Trump also ordered the mobilisation of the US navy into the Pacific in light of recent North Korean missile testing and concerns regarding their nuclear armaments. There’s a fair probability Trump got the go-ahead from the Chinese President following their recent meeting.
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