Australian Market Summary | 3 August 2018

For the 6th week in a row the ASX200 looks like closing the week at or around the 6200-6250 level. Just like last week, and the week before, and the week before that, our share-market remains ensconced in the push-pull of a strong US economy and share-market and the undercurrent of future trade protectionism.

This week - more US strength, more Asian uncertainty…

The US Federal Reserve met this week, confirming the economic strength by upgrading their language to reflect a ‘strong’, not ‘solid’, economy.  It might not sound much, but people in our industry fixate on these changes to terminology, and in this instance, the Fed-watchers are noting that the term ‘strong’ hasn’t been used in reference to activity since 2006, deep into the previous economic expansion.

Further confirming the upbeat mood, early data out points to another month of strong jobs growth in July, and a manufacturing sector that continues to expand strongly, but notably, at its slowest pace in over a year.

The Federal Reserve seem sure to raise rates at the September meeting (92%+ chance) and again in December, which would take US cash rates to 2.50% and their highest level since mid-2008.

Counterbalancing the US optimism, Chinese and Asian share-market performance this week was poorly, and Chinese mainland shares are now back at their July lows with investors fearful the impact of US trade protectionism will be detrimental to local industrial activity. Further rattling nerves is the slow but deliberate slide in China’s currency, which has now fallen over -10% since late March to be within 3% of its weakest level in a decade.

The falling Chinese RMB is a nervy thing since it is ultimately a negative for global growth and profit margins (Chinese firms undercutting global peers for market share), but there is also the fear that the weakening RMB could perpetuate further capital flight from China and ultimately lead to a currency crisis and resulting asset price shock.

Australian economy showing early signs of a credit-crunch…

Locally, the economic data coming out this week with reference to July activity is shifting to a softer tone.  It’s got me pretty convinced that Jonathan Mott’s (UBS bank analyst) call, way back in May, that Australia could easily suffer a sharp credit crunch post the Royal Commission is looking very prescient.

This week we got private credit data out for June and it showed private sector credit growing at its slowest annual rate since 2014, rising at +4.5% only.

Loan growth has slowed to such an extent that both the Commonwealth Bank (CBA) and ANZ (ANZ) cut rates on different mortgage products this week as means of attracting greater share of the rapidly diminishing home loan pie.

Worse, total Australian money supply grew at its SLOWEST RATE ON RECORD rising at a mere +1.88% annually in the June quarter, even lower than the +1.94% growth rate witnessed at the depth of the 1991 recession.

The impact of tightening credit seems to be emerging across multiple sectors now. This month’s manufacturing sector activity report for July saw new orders in that sector fall to a 2-year low, and within the same survey of services sector activity, July new orders collapsed back from a record high to be only modestly growing relative to the previous month.

It has a rather ominous feel to it, and I would think the run in to Spring auction season will bring with it more negative headlines, and ultimately it feels like Christmas could be a little sketchy too for retail.

Results Season commenced – Rio Tinto (RIO) a little soft, but lots more ahead

RIO reported a slightly soft profit figure this week, citing rising cost pressures as an increased burden on the business. The profit figures missed by -2-4% depending on where you looked, and the 1H dividend came in -10% under market forecasts too, albeit the company cited a willingness to return proceeds from future asset sales, meaning another $4bn of further capital returns are likely in the coming year.

In the coming fortnight we will get results or trading commentary from each of ANZ, CBA, Challenger (CGF), NAB, Computershare (CPU), CSL (CSL), Insurance Australia (IAG), SEEK (SEK), Wesfarmers (WES), Woodside (WPL), Downer (DOW), QBE (QBE), Telstra (TLS), Sonic Healthcare (SHL) and Treasury Wine (TWE), and we have high hopes for many of the stocks we hold, but also for the possibility of adding new names to the portfolio.

 

Thursday 5pm values

 

Index

Change

%

All Ordinaries

6327

-3

-

S&P / ASX 200

6240

-4

-0.1%

Property Trust Index

1422

+10

+0.7%

Utilities Index

8052

+129

+1.6%

Financials Index

6281

-26

-0.4%

Materials Index

12075

-84

-0.7%

Energy Index

12028

+206

+1.7%

 

Thursday Closing Values

 

Index

Change

%

U.S. S&P 500

2827

-19

-0.7%

London’s FTSE

7576

-82

-1.1%

Japan’s Nikkei

22512

-74

-0.3%

Hang Seng

27714

-930

-3.2%

China’s Shanghai

2768

-110

-3.8%

 

Key Dates: Australian Companies

 

Mon 6th August

N/A

Tue 7th August

Div Ex Date – Djerriwarrh (DJW)

Wed 8th August

Earnings – AMP (AMP), Commonwealth Bank (CBA), IOOF (IFL), Transurban (TCL)

Div Pay Date – MCP Master Income (MXT)

Thu 9th August

Earnings – AGL Energy (AGL), Crown Resorts (CWN), Magellan Financial (MFG), Suncorp (SUN)

Div Ex Date – Rio Tinto (RIO)

Fri 10th August

Earnings – REA Group (REA)

 

3rd August 2018, 530pm

 This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.