7 Mar 2014
• Markets this week were driven by the events in Ukraine, falling when concerns were raised, and subsequently increasing as concerns subsided.
• Not surprisingly, Russian stocks slumped the most in 5 years and Ukrainian debt dropped the most on record. European markets in general were choppy.
• The Australian market was largely unaffected by the events, rising strongly as company reporting season came to a close. The US and Asian markets were much the same.
• Overall results from company reporting season show that corporate Australia is in good shape, probably better than expectations leading into it. Commsec found that over 65% of those that reported improved their profit results, which is the best result since the 2009/10 FY.
• The ACCC (competition regulator) has blocked AGL Energy’s proposed acquisition of Macquarie Generation’s assets on the basis of a substantial lessening of competition in the market for the retail supply of electricity in NSW. The move is a blow to AGL and to the NSW government.
• Iron ore prices have experienced their worst start to the year since 2008, down over 12%. The fall isn’t surprising given slowing Chinese growth, but has happened later than most expected.
• As expected, the RBA left the official cash rate on hold repeating its view that a period of stability is prudent.
• Building approvals rose more than expected in January, with approvals now 34% higher than in the same month last year.
• Australian private sector credit (housing, personal, business) slowed in January from the December reading. Total credit growth is up on the previous period, but nothing to get excited or concerned about (depending on whether you’re a creditor or a debtor).
• New home sales increased in January after falling in December. The volume of new home sales, new detached housing, and new multi-unit sales all rose, with multi-unit sales the strongest. Overall, new homes sales lifted by 17% versus the same time last year.
• Capital expenditure intentions for 2014/2015 slumped even more than most expected. The 1st estimate released implies a fall of about 11% on the same period last year. Most, including the government, had forecast a 2% fall. The data is heavy mining, so that explains some of the difference, but not all. The headline number is concerning.
• Retail spending jumped sharply in January, following the rise in December. NSW drove the lift in sales contributing more than half of the increase.
• Job creation in the US last month disappointed against higher expectations (139k jobs vs 160k). Cold weather continues to affect the economy. February employment data is expected to improve.
• Consumer prices in Europe grew slightly more than expected, easing pressure on the European Central Bank to take action to curb the potential threat of deflation.
• The Ukrainian crisis was front and centre of news media this week. In case you missed the origins of the crisis, the Ukrainian people rose up against the pro-Russian President and other members of parliament. New government was installed in the interim, but the southern Crimean region and some parts of east Ukraine remain pro-Russian. Tensions escalated when Russia mobilised troops to the border. The US and NATO are also involved, with Germany not far behind.
• Prime Minister Abbott will make a quick visit through northern Asia, visiting China, Japan, and South Korea. The stop in China is aimed at starting to mend the relationship with China amid rising tensions more recently – China weren’t happy that we spoke out against their move to increase sovereignty over parts of the South China Sea and have maintained our reluctance at Chinese investment / asset purchases.
• The Federal Government has rejected Qantas’ bid for direct assistance based on advice from 2 investment banks, government departments, and accounting firm PwC. The company has asked for a guarantee on all new debt or a $3bn unsecured loan facility. The loan only would’ve have been for 1 year until parts of the Qantas Sale Act could be repealed. The repeal of the act has just passed the lower house of parliament, but looks likely to fail in the Senate.