11 Oct 2019
Equity markets edge higher on hopes of trade deal
- Local and global equity markets moved higher this week on renewed hopes a trade deal might be struck.
- In local stock news, packaging company Orora’s shares rose sharply after the firm decided to offload its cardboard packing unit to Japan’s Nippon Paper for $1.7bn. The move will give them greater balance sheet flexibility.
- Brambles shares rose after the company announced sales had risen 5% in the September quarter, meeting company guidance, but generally above expectations given the weakening economic backdrop.
- ANZ Bank will lower cash profits by $559m in the 2nd half, as it adds to its customer remediation bill following the banking royal commission.
- Australian retail spending remains weak, but last month’s result was better than expected led by a strong rise in clothing, footwear, and personal accessories and a reasonable rise for department stores. No doubt numbers were boosted by lower borrowing costs and government’s first round of tax cuts.
- Apartment building activity contracted for the 18th month in a row in September, falling more than in the previous month. In contrast, the number of new homes that began construction grew for the 1st time since 2017.
- US employment grew by 136,000 last month with unemployment dropping to a 50 year low. However, manufacturing employment declined for the first time in 6 months.
- In other US labour market data, US job openings fell to a 1.5 year low in August and hiring declined. The reduction in vacancies was led by manufacturing.
- Markets are now fully pricing in another RBA rate cut before year end whilst the chances of a US Fed rate cut at the end of this month has risen to 77%. The US central bank chair indicated that the bank could increase the size of its balance sheet soon.
- German industrial orders in August fell more than expected, with expectations already very low. Factory orders also fell again. Recession in Germany is almost a forgone conclusion with further ramifications for broader EU recession risks.
- China’s services sector grew at its slowest pace in 7 months in September as operating expenses continued to rise.
- According to reports, US and Chinese trade negotiators met this week, with neither side showing any signs of backing down, but plenty of rhetoric reported. The next round of tariff increases are fast approaching with the US set to raise tariffs on US$250bn worth of Chinese goods to 30%.
- The US Department of Commerce put another 8 firms on their so-called Entity list which restricts US firms from selling technology to Chinese companies. The US also slapped visa restrictions on Chinese officials linked to human rights abuses, and blacklisted another 28 associated companies.
- UK and Irish prime ministers said they saw a pathway to a possible Brexit deal after a last-ditch meeting aimed at finding a way for an orderly Brexit.
- In a further hit to Iran’s finances, China’s state oil company has pulled out of a US$5bn deal to develop a portion of Iran’s massive offshore natural gas field. France’s Total SA had previously withdrawn due to US sanctions.
- President Trump pulled troops out of Syria, effectively giving the green light for Turkey to cross the border and launch military action against the Kurds in north-east Syria. The Turkish President claimed the action was to eliminate “a terror corridor” along the Turkish border, but in reality was an excuse wipe out the Kurds who make up 20% of Turkey’s population and total some 20-30 million people across the Middle-East. Key to note, the Kurds have generally fought with our allies (including the US) through numerous Middle-East conflicts.
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