9 Aug 2019
Investor sentiment takes a beating on trade war escalation
- Local and global equity markets fell this week as investor concerns rose regarding the increasing likelihood of a trade war induced recession.
- The falls were the sharpest we’ve seen since the December quarter last year, and came following recent investor disappointment in both the European and US central banks not being as stimulatory as markets felt was necessary.
- The Australian 10 year bond yield fell below 1% this week as a result of investor concern regarding the impacts of trade wars and the expectation that the RBA will have to lower rates faster than previously expected.
- In local stock news, Suncorp reported a slight increase in cash earnings which was below market expectations. Excess capital was well ahead of requirements following the sale of their life insurance business, which will result in a $506m capital return to shareholders.
- CBA shares fell after the bank reported full year profit down 4.7% as a result of royal commission related charges. Operating income fell as operating expenses rose, as compliance related costs surged.
- AMP has found a way to offload its life insurance business and has raised $650m in capital to help fund a turnaround strategy, after the new CEO reported a $2.35bn write-down. The newly raised capital will assist in funding a $1.3bn three year transformation program. The equity raising was well supported by institutional investors.
- The Aussie dollar endured a volatile week, falling to levels not seen since 2009, before rising to finish the week higher on the back of a bigger than expected Australian trade surplus.
- The RBA left the cash rate unchanged this week as expected. However, expectations rose regarding more aggressive easing by the RBA ahead after the Reserve Bank of NZ cut interest rates by 0.50%.
- Central banks in India and Thailand followed the Kiwi’s route with both cutting their lending rates given concerns regarding a global slowdown.
- Australia’s trade surplus increased to a record high of $8.03bn in June, well above expectations of a $6bn surplus, thanks to booming iron ore volumes.
- A slump in demand for new houses and apartments in July has caused the sharpest contraction in Australian home building in 6 years, according to a survey of businesses in the construction industry. House building contracted for the 12th month in a row and new orders fell at their steepest rate in 6 years.
- The value of loans to new home buyers and property investors increased for the 1st time in more than a year in June, boosted by the first of the RBA’s recent rate cuts and the shock Coalition victory at the federal election. The number of loans to owner-occupiers for construction purposes fell to the lowest levels since 2013.
- Exports from China unexpectedly returned to growth in July on improved global demand, whilst China’s commodities imports surged in the month.
- Following US President Trump’s threat to impose additional tariffs, the Chinese retaliated by “allowing” their currency to fall to the lowest level in a decade in order to make Chinese goods more competitive. The Chinese government also asked companies to suspend US agricultural imports.
- Protests continued in Hong Kong as the head of China’s Hong Kong and Macau Affairs office indicated that this was the biggest crisis faced since the country returned from British to Chinese rule in 1997. Hong Kong is one of the world’s most important financial hubs.
- The UK became the first nation to agree to join a US-led mission to protect shipping through the Gulf of Hormuz after the EU baulked at committing ships to the region.
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