24 May 2019
Coalition victory drowned out by trade war fears
- Local stocks pushed higher early in the week buoyed by the weekend’s Federal Election result, with a Coalition victory seen as supportive for equity markets.
- However, both local and global stocks finished the week lower as trade war fears escalated.
- In local stock news, stocks with high levels of franking rose strongly this week following the Coalition’s shock Federal Election win, in light of Labor’s proposal to remove excess franking credit benefits.
- Stocks in other industries likely to be hurt by Labor’s policies also bounced strongly including private health insurers, mortgage brokers, residential property developers, and private hospital operators.
- Aristocrat Leisure posted a 17% jump in 1st half profit on the back of record profit from its American gaming division and continued growth on its social and online casino games. Revenue was up 30%.
- Wesfarmers $776m approach to acquire WA lithium miner Kidman Resources was a step closer after announcing the completion of their due diligence.
- The Aussie dollar fell against the US dollar following RBA Governor Lowe’s dovish speech regarding the economy and the potential need for further stimulus.
- The banking regulator has eased the home loan serviceability rules banks must apply. The move sees the serviceability interest rate move from 7.25% to a 2% buffer above the loan’s interest rate (circa 6%). This will result in a lift in borrowing capacity of 10-15%.
- The RBA governor delivered a speech almost laying the foundations for a rate cut at the next meeting. At least two rate cuts are likely this year, and we expect the RBA to do both in quick succession.
- US consumer sentiment surged in May to its highest reading in 15 years. The positive data comes on the back of retail sales and industrial production growth slowing.
- US central bank’s latest policy meeting minutes showed agreement that their patient approach to setting interest rates could remain in place for some time.
- Eurozone consumer prices bucked the trend, rising to a year on year pace of 1.7% in April. Still below target, but the downward trend may have abated for now.
- The central bank of China has indicated it will help reduce borrowing costs for companies, especially small firms, as well as maintain monetary support to fend off any major risks whilst attempting to spur lending.
- The Coalition has cruised to victory in the Federal Election and will have a majority in the lower house, removing the need for crossbench support. Bill Shorten has stepped down as the leader of the Labor party with Anthony Albanese likely to be elected unopposed as the new leader.
- US-China tensions escalated following the US government’s decision to hit Chinese telecoms giant Huawei with severe sanctions. It means that Huawei can’t do any business in the US and largely can’t do any business in allies of the US without the risk of those allies being hit with sanctions.
- Concerns have increased regarding trade war escalation with China appearing to strike a more aggressive tone at home whilst suggesting that further talks could prove pointless unless the US changes course.
- Brexit talks between Britain’s major political parties unsurprisingly ended without agreement with the opposition Labour Party. In addition, PM May’s own party rejected her compromise deal on exiting the EU, putting her leadership at risk.
- Middle East and US tensions rose again after Yemen’s Iranian-allied rebels took responsibility for an attack on a Saudi airport and military base. The attack came after Iran announced it had quadrupled its uranium enrichment production capacity, and followed attacks on Saudi oil tankers more recently.
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