17 May 2019
Stocks higher on potential RBA rate cut
Markets
- Local stocks finished higher this week, buoyed by an increase in expectations of an RBA rate cut.
- Global stocks also pushed higher as US company reporting season finished strongly, with 75% of companies posting results above expectations.
- In local stocks news, Realestate.com reported a reasonable 3rd quarter result, as the company increased fees to make up for declining listing volumes. Listings declined 9% across the country, with Sydney and Melbourne hardest hit at 18% and 12% declines.
- CBA reported a weak result with higher remediation costs and lower margins than the market expected. Operating expenses also increased. Loan arrears ticked up, but were largely in line with expectations.
- Lendlease shares pushed higher after an Australian newspaper reported that a Japanese suitor was looking to take over the property company. Lendlease confirmed that it hasn’t had any approaches.
- The Aussie dollar fell this week as weaker than expected employment data might be enough to push the RBA to cut rates.
- Oil prices moved higher this week following reports confirming that a number of Saudi Arabian vessels carrying oil had come under attack in the Strait of Hormuz, where 30% of seaborne oil passes through. Suspicions are high that Iran might be involved following the US’s sanctions on Iranian oil exports, with Iran subsequently threatening to close the Strait.
Economics
- The RBA tried to confuse itself this week, by reducing its forecasts for inflation and economic growth, whilst leaving its forecasts for unemployment unchanged, even though they expect weaker employment conditions ahead. Either they’re hoping for a big fiscal injection from a new government or they’re kidding themselves.
- A mixed Australian jobs report has increased the chances of the RBA cutting rates, with the unemployment rate rising to 5.2%. Surprisingly, over 28,000 jobs were added in April, but over 6,000 jobs were lost. The combination of that and an increase in the participation rate saw the rate move higher.
- Australian lending data come in below market expectations with a 3.7% decline. Lending fell across all components, with the largest falls in personal finance and owner occupier dwellings.
- Australian wages growth remained anaemic with a 0.5% lift in the March quarter coming in below expectations.
- Core US inflation rose to 2% for the first time since November, with higher rent costs pushing consumer prices higher.
- US industrial production and retail sales dropped in April. Together with weak inflation, the US central bank’s decision to pause policy tightening remains the right one.
- UK economic growth expanded in the 1st quarter by 0.5%, making it the highest level of growth since 2017 and lifting the annual growth rate to 1.8%.
- Eurozone industrial production fell in March for the second straight month as output declined in France and Italy, whilst output recovered in Germany.
- Chinese economic data was weaker than expected with industrial production and retail sales data disappointing, stoking expectations of fresh government stimulus.
Politics
- Australian’s head to the polls this weekend, with betting agency odds almost giving the Coalition no chance of retaining power. It’s always closer than expected on the day, with a win likely to come down to preference votes via the smaller parties.
- President Trump carried through with his tariff threat, more than doubling the tariffs already in place. China subsequently retaliated as expected. The market appears to be taking this as a negotiating tactic to get the deal done quicker, but risks of a no deal have definitely risen.
- President Trump also needs to decide on whether he will go ahead with auto tariffs on the EU with the 18 May deadline approaching. However, reports seem to indicate that a 6 month extension was likely.
If you would like to discuss any of the information or meet with us, please feel free to call or email us by clicking here
