16 Aug 2019
Equity markets under pressure as investors await further stimulus
Markets
- Equity markets finished lower this week on recession concerns as bond investors continued to drive bond yields lower as a signal that more central bank stimulus is required, absent any fiscal support from governments globally.
- In local stock news, JB Hi Fi has reported a strong result, boosted by a better than expected 2nd half to the financial year. Net profit after tax was up over 7% and sales were up 3.3%, with online sales up 23%. However, the company flagged a weak sales outlook for the 2020 financial year.
- CSL shares pushed higher after the company increased full year profit by 11% on strength of its antibody replacement drugs and on guidance for profit growth of 7-10% this financial year.
- Sydney Airport delivered a result in line with expectations, with earnings up 3% and underlying net profit up 15%. Full year dividend guidance was reaffirmed.
- Telstra reported a large full year profit drop and flagged lower earnings next year. The fall in profit came from previously announced restructuring costs and earnings lost to the NBN. Mobile revenue was up as was the number of mobile retail customers, whilst the company’s cost reduction program remains on schedule.
- The iron ore price showed some signs of stabilisation this week after falls of over 20% more recently. The falls are a function of increased Brazilian supply, concerns regarding the global economic outlook, and tightening of environmental requirements by the Chinese in key steel making provinces.
Economics
- The RBA expects housing investment to return to growth sooner than previously expected, with forecasts of softer conditions continuing until late 2020. Building approvals data continues to disappoint in light of lack of credit and oversupply in some regions.
- The RBA has revised their economic growth forecasts lower for 2019 and also expects inflation to be weak through to 2020. The stubbornly high unemployment rate remains their primary concern.
- Australian wages growth remained flat at 2.3% for the year in the June quarter, with the boost from public sector wages in Victoria helping to offset weak private sector wages growth of 0.5% in the quarter. The reading puts the RBA in play for a rate cut in September or October.
- The Australian unemployment rate remained steady at 5.2% even in light of 41,000 new jobs being added, with more than 35,000 of these being full time roles. Underemployment continued to rise showing part-time workers want more hours.
- US consumer prices accelerated in July, with the less volatile core measure up 2.2% on the same time last year. The move was the largest gain in 6 months.
- Britain’s economy unexpectedly contracted in the 2nd quarter for the first time in 6.5 years, with Brexit uncertainties weighting heavily on business investment, making new PM Boris Johnson’s task of Brexit even harder.
- China has reported a slump in industrial output to more than 17 year lows as the trade war takes a heavy toll on businesses and consumers. Greater government stimulus will be needed given we also saw weak infrastructure and property investment, lower crude steel output, and lower retail sales growth than expected.
Politics
- Markets got what they were hoping for on the trade war front with the US delaying the 10% tariff on certain Chinese products beyond September, whilst some imports would be exempted altogether. China later indicated their support for a trade war compromise with President Trump firing back that a resolution would have to be on US’s terms.
- The leader of the ruling League party in Italy pulled his support for the country’s governing coalition (a combination of the far right and far left parties) and called for fresh elections.
- The Argentinian peso collapsed as the pro-market government could potentially lose power to a moderate leftist candidate with a history of deal making. The concerns were amplified given his connection to the Kirchner family, which might mean a return to their populist policies.
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