25 Oct 2019
Investor sentiment buoyed by potential Brexit deal
- Local and global equity markets moved higher this week as investors took comfort in a potential Brexit resolution, positive rhetoric from both Chinese and US officials on the trade front, and a better than expected start to US corporate reporting season.
- US company reporting season continues to progress stronger than expected with more than 80% of companies topping expectations so far. The sample size is small. Analysts still expect a small contraction in earnings for the overall market in the quarter.
- In local news, buy-now-pay-later companies (eg. Afterpay) came under selling pressure this week on concerns the Reserve Bank of Australia might impose regulations on the sector.
- Treasury Wine Estate shares fell sharply after the surprise announcement that the current CEO will retire from his role in 1 years’ time, in order to relocate back to the UK to spend more time with his family, but that he would stay on in an advisory capacity for another year after that date. The current COO has been appointed as his successor.
- Stockland Group shares rose strongly early in the week after the company made comments at their annual general meeting that it was confident the residential property market had hit bottom earlier in the year and was now rebounding.
- JB Hi-Fi shares rose strongly yet again after the company announced strong 1st quarter sales.
- A key Australian consumer confidence survey showed more people saying they felt worse off now compared to a year ago.
- Key speeches from US central bank members showed the bank remained comfortable with an easing bias given inflation remained low, and that they remain very watchful of the global trade slowdown potentially having broader impacts on the US economy.
- Chinese economic growth came in slightly below expectations, which was enough to spook investors. 3rd quarter economic growth came in at 6% rather than the 6.1% expected by analysts, and below the 6.2% rate of growth achieved in the previous quarter.
- A range of other Chinese data was generally supportive, with industrial production outpacing economist forecasts, retail sales were higher than the same time last year and higher than the previous month, whilst fixed asset investment and new construction activity in the property sector rose.
- The International Monetary Fund has lowered its forecast for global economic growth this year to 3%, which would mark the slowest growth since the global financial crisis. The Fund has proven not to be most accurate forecaster, but their profile is large enough for people to take notice.
- Brexit found a way to get messier yet again. British parliament voted to support the current Brexit deal in principle, but then declined to pass it until appropriate Brexit legislation was in place, which would take them past the 31 October deadline and thus triggering a piece of legislation forcing the PM to request a further extension. The EU then confirmed they received an extension letter, but PM Johnson had refused to sign the letter and made clear he opposes such an extension. If an extension were granted, February 2020 is speculated as the new date.
- US White House officials have indicated that US tariffs scheduled for December on Chinese goods could be withdrawn if negotiations continue to go well. This follows the delay of the October planned increase in tariffs. Whilst these are positive steps from the perspective of tariff escalations, it doesn’t address the extensive tariffs already in place.
- In a short sighted and plain-right silly move, Germany’s Berlin government has moved to freeze rents in the state. That will simply result in less investment in the state and less housing supply from property companies hurt by the move. The smarter move would’ve been to stimulate the local economy, to assist wages growth and new investment. Germany will need to move on from its frugal ways absent a trade war resolution.
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