Australian Market Summary (Issue 440) – 17 March 2017

 I looked at my notes this week and realized it could be pleasantly short note today.

With reporting season now over, the corporate news-flow has slowed to a trickle, leaving markets to respond to purely macro-economic action.

We had some new consumer and business confidence figures domestically and we had the Federal Reserve rate increase, but beyond that there was little further to remark upon.

With that in mind, I thought I might include some charts (pictures if you will) for you on just where our economy and market stands for context.

Pictures really do paint a thousand words I think, so I hope in flicking through some of these charts you will begin to see the world through my eyes a little clearer.

U.S & China Raise Interest Rates

As expected the U.S Federal Reserve raised rates for the third time in a decade (amazing eh), lifting its effective cash rate to between 0.75% and 1.00%.

The commentary surrounding the rate rise was perhaps more anodyne than usual, and that should be taken as a positive.

It seems that in spite of the strength of U.S economic demand in recent months, the U.S Federal Reserve are looking no more concerned about the need to raise rates at a faster pace than market expectations. Markets are now pricing in a further 2x 0.25% rate rises from the Fed this year, with a small option on a further 3rd hike, and this seems for now, about right.

Bond markets actually rallied on the tightening, such was the level of expectation, and this is an altogether good thing for global investment markets.

China followed suit with its own moderate tightening, lifting the rates on short-term banking sector finance by 0.10% to 0.20% largely in response to the U.S move.

… and National Australia Bank (NAB) also raises interest rates

Interestingly, NAB announced a second rise in 3 months on its domestic mortgages this week, lifting owner-occupier variable mortgage rates by a modest 0.07% to 5.32% and residential investment home loans a more substantial 0.25% to 5.80%.

We flagged this as a slow-burning issue back in December and January when each of the majors announced a rise in fixed mortgage rates.

Though these rate rises of themselves aren’t of a quantum that will upset the housing apple-cart, they are significant in that they demonstrate the trend is now firmly moving towards higher mortgage costs.

Moreover, the rise in investment lending charges of 0.25% is more tangible and arguably of more significance than many would suggest given that investment loans currently make up over 40% of new monthly mortgages written.

That’s quite a stat.

As you know, I am firmly in the camp of cooling house prices during 2017 and 2018 as the evidence just continues to make sense.

Furthermore, I was chatting with a friend this week and it seems an absolute shoo-in that the Labour Party will campaign for the 2019 Federal Election on a platform to significantly curtail negative gearing benefits.

The headwinds are stirring.

Australian Economic Data continues to muddle along

Weekly ANZ Consumer Confidence (see below) fell back to an 8-month low this week.

Westpac Monthly Consumer Confidence (see below) was largely flat on release this week.

As I have said before, in spite of record low rates, record high house prices and a currency that has spent 4-years easing back 25%, Australian households just don’t feel much more optimistic!

Contrast that with the chart below on US Consumer Confidence (below), and you can see that where the US took the GFC a lot harder than Australia, it has unsurprisingly rebounded significantly better than us here in Australia.

Part of the reason for this is that our economy simply wasn’t impacted by the impact of the GFC – China instantly stimulated its economy, and boom, our mining sector saw an almighty resurgence.

See the chart below showing the number of Australian’s in full-time employment. Look at the boom from 2009 until 2013.

Fortunately, when the mining sector began to wane in 2012-2013, Australia’s construction sector was beginning to kick into gear, fueled by the RBA interest rate cutting cycle.

Many of the jobs lost in the mining sector downturn were accommodated by the resurgence in construction.

Trouble now is that with construction set to slow, it’s hard to see which industry drives employment and economic growth further.

Again, the chart below shows the virtual absence of full-time employment growth in Australia this past 18 months.

Without a fresh stimulus, our domestic economy will lag the rebounding growth seen in much of the rest-of-the-world.

This is once again our motivation for actively encouraging as many of you as possible to consider the benefits of international equities for the medium term.

I will leave it here this week.

Should any of you wish to receive a copy of my next monthly chart pack, please drop me a line.

In the meantime, hope you have a great weekend.

Footy’s back next week. Amen to that.

Jono & Guy.

All Ordinaries5827+31+0.5%
S&P / ASX 2005785+26+0.5%
Property Trust Index1351+8+0.6%
Utilities Index8466+72+0.9%
Financials Index6741-76-1.1%
Materials Index10013+391+4.1%
Energy Index8946+204+2.3%


Key Dates: Australian Companies 

Mon 20th MarchDiv Pay-Date: ANZHA, ANZPG, NABHB, NABPA, Regis Healthcare (REG)
Tue 21st MarchDiv Ex-Date: WBCPG
Wed 22nd MarchDiv Ex-Date: Flight Centre (FLT), WBCPC Div Pay-Date: Blackmores (BKL), Computershare (CPU), Fairfax (FXJ), Mantra Hotels (MTR), WBCPF
Thu 23rd MarchDiv Ex-Date: Carsales (CAR) Div Pay-Date: Healthscope (HSO), WBCPE, NABPC
Fri 24th MarchDiv Pay-Date: Amcor (AMC), ANZPE, ANZPF



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