20 Sep 2019
US Fed reluctantly cuts rates
- The local equity market finished higher, buoyed by expectations of further RBA rate cuts in light of weakening economic data.
- Global equity markets were mixed, with European equities higher following ECB stimulus, US equities flat following a hawkish Fed rate cut, and Asian equities lower on weaker Chinese data.
- In local stock news, Bellamy’s has urged its shareholders to accept a $1.5bn takeover bid from China Mengniu Dairy Company. The offer represented a near 60% premium to last week’s closing price. The move comes after Bellamy’s faced challenges from regulatory delays in China as the government cracked down on the daigou channel.
- The oil price soared as much as 20% earlier in the week following attacks on Saudi Arabia’s oil facilities, which took 5-7% of supply out of the market, and raised concerns of increased US / Iran tensions.
- The federal budget is close to surplus with the announcement of a $700m deficit in the last financial year, marking a $13.8bn improvement on the deficit predicted when the budget was delivered in May 2018. Hard for the government to claim a win here given we’re heading for recession and the improved budget position is a function of lower spending on the NDIS, higher income tax collected (bracket creep), and strong iron ore prices and export volumes.
- The federal government’s leading indicator of employment fell for the 16th month in a row in September, further pointing to slowing economic conditions.
- The Australian unemployment rate has risen to 5.3% in August. Almost 35,000 jobs were added, but the composition was poor, with 50,000 part-time jobs added and 15,000 full time jobs lost.
- Australian consumer confidence continued to fall, hitting a 2 year low.
- The US central bank cut the cash rate by 0.25% to 1.75-2.00% as broadly expected. Members didn’t give much away on the forward guidance front, but maintained the US economy remained healthy. Some saw it as a reluctant cut.
- US retail sales increased in August at twice the rate analysts expected, with the US consumer continuing to heavily support US economic growth.
- US manufacturing output increased more than expected in August, whilst homebuilders’ optimism crept up.
- US homebuilding surged to more than 12 year high in August as both detached housing and apartment construction increased.
- Eurozone annual inflation remained steady at 1% in August, in line with the prior month, and down from 2.4% in August 2018.
- Chinese industrial production fell to its lowest level since 2002, raising hopes that the Chinese government will provide further stimulus. Chinese data also showed fixed-asset investment and retail sales coming in below expectations.
- Houthi rebels from Yemen have claimed responsibility for drone attacks on Saudi Arabia’s oil facilities, wiping out some of the world’s oil supply. It’s likely the drones were supplied by the Iranians, but impossible to tell if they were operated by the Iranians. President Trump subsequently ordered an increase in sanctions on Iran and hasn’t ruled out a more direct response.
- President Trump again went after the Chair of the US central bank labelling both him and the bank as failures and gave them a serve on the communication front. Their press conference messaging wasn’t overly clear, partly a function of their reluctance to cut rates.
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