18 Oct 2019
Possible early Xmas on the political resolution front
- Local and global equity markets trended higher this week on news of a “partial” US-China trade war agreement and a potential Brexit deal.
- September quarter US company reporting season got underway with some strong results early on. In contrast, analyst earnings expectations are pretty weak, with expectations of a fall by 3-4% on the same time last year.
- European shares haven’t got off to such a good start during reporting season, with German stocks reporting particularly weak results. In contrast, UK shares rose strongly on the back of a potential Brexit deal.
- In local stock news, Transurban reported weak average daily traffic growth across its network in the September quarter. The company has indicated that a return to previous growth rates in the near term is unlikely given the relative affordability of tolls, with years of increases above both wages growth and inflation.
- Santos shares pushed higher after the company agreed to pay $2.15bn for ConocoPhillips’ northern Australian business. The deal will be funded from existing cash and new debt facilities.
- BHP and Rio Tinto also updated the market, with both reaffirming their previous production guidance. Rio’s iron shipments rose 5%, but cut its bauxite and alumina production forecast for the year. BHP iron ore production was down 3% due to maintenance activities.
- The Aussie dollar pushed higher this week following a small drop in the unemployment rate which some speculated might lead the RBA to hold off from another rate cut this year. The drop will largely be ignored by the RBA.
- US economic data sent conflicting signals with consumer sentiment lifting, after being weak for some time, whilst retail sales contracted in September for the first time in 7 months.
- The US central bank announced it would begin buying about US$60bn per month in short-term government bonds to ensure “ample reserves” in the banking system, a program that will continue at least until the 2nd quarter of 2020. The move is in response a shortage of available US dollars in the system and the bank’s policy error in reducing the size of its balance sheet too quickly last year.
- Chinese trade data was weak with both imports and exports weakening substantially in September, coming in worse than expected. Imports declined 0.7%, versus expectations for a 1.5% increase, whilst exports dropped 6.2%, versus expectations for a 2.3% decline. The world economy is slowing.
- China’s iron ore imports rose for a 3rd straight month in September to a 20 month high. Looks like the Chinese are re-stocking given year to date volumes are down 2.4% on the same time last year.
- The US and China apparently have a “partial” trade deal, with President Trump stating that they have reached a phase 1 trade deal with agreement on intellectual property, financial services, and big agricultural purchases. The problem is the Chinese don’t negotiate in phases, so we’ll see if this sticks or not. A Chinese delegation then threw cold water on Trump’s “enthusiastic” descriptions. However, it looks like the October tariff increases have been averted, but the December increases remain on the table, pending a “phase 2” deal.
- British PM Boris Johnson and the EU finally have a deal which still needs to be passed by the UK parliament, in which he has no majority. The Northern Irish Democratic Unionist Party has already refused to support it, saying it’s not in Northern Ireland’s interests. Labour Party leader Jeremy Corbyn has condemned the new proposal as “even worse” than the settlement reached by Theresa May.
- The Turkish PM has agreed to a ceasefire in Syria after significant pressure from the US. The move comes after President Trump gave the “green light” for Turkey to cross the border and push Kurdish nationals back, which also resulted in ISIS terrorists escaping from Kurdish prisons. The Kurds then sided with the dictator Syrian leader Al-Assad in order to save themselves and push Turkey back.
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