23 Aug 2019
Equity markets higher on better than expected finish to US reporting season
Markets
- Local and global equity markets trended higher this week as investors eagerly awaited the US central bank chair’s address at the annual Jackson Hole gathering of central bankers.
- Australian company reporting season continued with some extreme moves in share prices, both up and down, for those that missed, met, or beat expectations.
- US company reporting season is nearing completion for the largest 500 companies with 73% beating broker estimates. Expectations are now for 2nd quarter earnings growth of close to 3%, which is better than expectations leading into the season.
- The German government auctioned a 30 year bond with a negative interest rate for the first time this week, but faced lack-lustre demand with the sale attracting less than half of the 2bn euros of debt on offer.
Economics
- A key US manufacturing index showed activity contracting in August for the 1st time in nearly a decade.
- A voting member on the US central bank’s interest rate setting committee cited economic conditions that were pretty good and that the bank has to be careful not to ease too much when there aren’t significant problems. Key to note – he was the one member who voted against their July rate cut.
- Markets are currently assigning a 96% likelihood of a 0.25% rate cut when the US central bank next meets. Minutes from last month’s meeting showed members had debated a more aggressive rate cut than was delivered, but didn’t want to be seen as initiating rate-cutting path ahead.
- Inflation in the Euro area fell further, coming in at 1% for July, which was below consensus expectations. June data showed inflation at 1.3%.
- Germany’s central bank has warned that the country is likely to tip into recession in the 3rd quarter, dragged down by a sharp drop in German exports and a decline in industrial production.
- The Chinese central bank unveiled interest rate reforms targeted at lowering corporate borrowing costs. The move comes after the government announced plans to support private consumption to help shore up economic growth.
Politics
- Germany’s right-left coalition government would be prepared to look past their balanced budget rule and take on new debt to counter a possible recession, according to a report from a key publication. Might sound like an obvious measure, but a balanced budget is sacrosanct in German politics.
- The US national economic adviser has indicated that talks are planned between the US and China over this week and next, and that recent phone calls between negotiators had been positive.
- Italy’s Prime Minister has resigned, potentially paving the way for new coalition government or early elections.
- German leader Angela Merkel has said that the EU needs to think about practical solutions to settle the last remaining issue in the Brexit deal on the table. However, officials in Ireland and the EU rejected UK PM Boris Johnson’s new demand to renegotiate the deal. A no deal Brexit is firming as a likely outcome.
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