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Free Trade Agreement with China fails to stem market decline

PSK Weekly Wrap

Equity markets confused on mixed trade war messaging

6 December 2019

Equity markets were mixed following concerns a phase 1 trade deal might not be forthcoming whilst Eurozone and Chinese economic data surprised on the up. Read more..

PSK Weekly Wrap

Equity investors buoyed by potential trade deal

29 November 2019

Local and global equity stocks moved higher on optimism that a phase 1 trade deal is imminent following indications from both sides that a general agreement had been achieved. Read more..

PSK Weekly Wrap

ScoMo accelerates infrastructure plans

22 November 2019

PM Scott Morrison has announced plans to push $1.78bn into the economy over the next 18 months through spending more on roads and rail projects. Some of the funding isn’t new, but rather an acceleration of previously budgeted funds. A good start, but not enough given the current economic backdrop. Read more..

21 Nov 2014

Markets

  • The Australian equity market fell further this week as the financial and resource sectors sold off, in addition to downward pressure from foreign investor selling.
  • European markets received a boost this week on the back of stronger than expected economic growth numbers from Germany and France, with even Greece outpacing their northern European neighbours.
  • The European Central Bank (ECB) President also played his part by reiterating the ECB’s readiness to take further action to combat deflation risks.
  • A couple of mega merger deals in the US pushed the US equity market higher – a US$65bn deal in the healthcare sector and a US$35bn deal in the oil services sector. Low borrowing rates and cash heavy corporate balance sheets will continue to support further M&A activity.
  • In local stock news, Sonic Healthcare shares fell sharply after it cut its forecast for earnings growth in the 2015 financial year, citing low market volume growth in the first quarter.
  • Orica, a global leader in explosives and chemicals, reported strong profit results for the full year to the end of September. The final dividend was increased, and the company announced the sale of its non-mining chemicals business for $750m. The market reacted poorly to the sale.
  • Wesfarmers reported that the ACCC will not oppose their acquisition of Pacific Brands’ The Workwear Group (King Gee, Hard Yakka). Wesfarmers’ Industrial & Safety Division was a key competitor as a supplier of industrial workwear.
  • The Aussie dollar hit a four year low during the week, below US86c, due to further falls in the price of iron ore and the rising US dollar.

Economics

  • Inbound overseas travel to Australia has spiked to a 10-year high on the back of the weaker Australian dollar. This should support tourism operators, hotels and resorts, and casinos.
  • Positive economic data continued out of the US. Retail sales rose in October, above forecasts. Consumer sentiment also rose to a new seven year high and consumer confidence is now at a five year high.
  • A key US business activity index lifted in October to its highest reading since 1993. US inflation was unchanged in October, tracking at a low annual rate of 1.7%. There still is no pressure on US rates, but the jobs market is showing signs of tightening.
  • Japan’s economy has fallen into recession after contracting 0.4% in the September quarter, the second straight quarter of contraction. The April GST rise and the potential for a second GST rise next year have weighed on the economy. Country-wide reforms are needed, and fast.

Politics

  • Leaders of G20 nations have committed to lift world economic output by an additional 2.1% or US$2 trillion by 2019 (making for some good, touchy-feel headlines). Whilst we applaud their attempts, the proof will be in their actions (ie. a hopeful reduction in self-interest) over the next few years.
  • Service providers have won unprecedented access to Chinese markets under the Australia-China Free Trade Agreement (FTA), which will liberate more than 90% of Australian exports from tariffs over the next four years. Under the deal, financial services providers will have access to China, ­second only to providers in Hong Kong and Macau, both special regions of China.
  • The Australian agricultural industry is a key beneficiary of the FTA with China, which will result in the elimination of tariffs over the medium to longer term. The deal is our most important to date, given China is our major trading partner, with Australian farm exports doubling in the five years to 2013 and valued at over $7bn in 2013.
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