16 Dec 2016
US Fed raises rates, talks to 3 more next year
Markets
- The US equity market continued breaking new records this week, even after a blip following the US central bank’s decision to raise interest rates.
- European equity markets also pushed higher, whilst Asian markets and the local market fell.
- In local stock news, the takeover battle for lotteries and gaming company Tatts Group is heating up with a Macquarie/KKR consortium launching a higher bid worth up to $7.3bn, hoping to scupper the initial proposal from Tabcorp. The new bid is potentially more generous, but more complex and highly conditional.
- Santos has announced a $1.5bn capital raising, the majority through an institutional placement at $4.06 per share. The reasonably large raising will be used to help speed up the reduction in debt.
- Crown Resorts announced plans to exit their investment in Macau and also shelved plans to develop a new casino and resort in Las Vegas. The move is aimed at returning funds to shareholders, reducing risk in the business, and enhancing value to existing shareholders via a buy-back of stock.
- OPEC (the cartel of some oil producing nations) and non-OPEC producers appear to have hammered out a deal resulting in Saudi Arabia signalling their intention to cut oil production by more than originally agreed last month. Russia will take the lion’s share of the cut for the non-OPEC producers. Boost to oil prices.
Economics
- A key Australian business conditions survey continued its downward trend in November with another decline leaving the reading at the lowest since April 2015.
- National house price growth slowed in the September quarter as unit values in Melbourne and Brisbane took a breather. Dwelling values slowed to 1.5% nationally versus the previous quarter, printing an annual growth rate of 3.5%, which was the weakest level in over 3 years. Price growth in Sydney was little changed from high levels last quarter.
- Australian consumer sentiment fell for the second month in a row to an 8 month low. All-time record low wages growth and out of cycle mortgage rate increase by the banks not helping.
- In contrast, a key US consumer confidence index rose to nearly its highest level since the global financial crisis.
- The US central bank raised interest rates by 0.25%, bringing the headline rate up to 0.50-0.75%. The rise was fully expected by the market, but the Chairwoman discussed the possibility of 3 rate increases next year versus current market expectations of just 2 rises.
- Chinese data showed improving industrial activity on the back of solid domestic and external demand. Consumption was much improved on the back of record online retail sales on Singles Day (antithesis to Valentine’s Day) - $23.4bn spent in 24 hours, a 32% rise on 2015, with more than 1 billion parcel shipments.
Politics
- Italian President Mattarella chose Foreign Minister Gentiloni (a close ally of departed PM Renzi) to form a new government. On the to-do list is key legislation which must be passed and then the likely calling of early new elections. In other Italian news, a report seemed to indicate that the European Central Bank has rejected an extension beyond year end for the planned saving of Monte di Paschi Sienna from going under.
- The potential for a “soft” Brexit and transitional arrangements has been on the agenda of late following recent comments from the UK PM and EU officials. However, some UK government officials think transitional arrangements won’t be needed as they believe a fast-tracked full trade deal can be in place by 2018….delusional.
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