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Morning Market Update - 9 May 2019


Pre-Open Data

International Markets vs Australian Market

Key Data for the Week

Key economic data released this week:

  • Wednesday – CHINA – Trade Balance – China’s trade surplus narrowed from US$32.4 billion in March, to US$13.8 billion in April.
  • Wednesday – EUR – German Industrial Production continued its rebound in March, rising 0.5% month on month, well above consensus expectations for a 0.5% fall.
  • Thursday – CHINA – Consumer Price Index
  • Thursday – US – Trade Balance

S&P ASX 200 Last 12 Months

Australian Market

The Australian sharemarket followed the lead of weaker global markets yesterday, to end the session 0.4% lower, weighed down by ongoing worries about a breakdown of trade talks between China and the US. 

Automotive Holdings Group (AHG) recommended shareholders accept an improved takeover offer from rival car retailer AP Eagers (APE). APE is now offering one share for every 3.6 AHG shares, instead of one for 3.8. The $2.3 billion merger, although still subject to regulatory approval, would bring together two of the country’s largest car retailers. AHG shares closed down 0.8% to $2.38, while APE finished down 2.2% to $8.88. 

TPG Telecom ended the session down 13.5%, after the ACCC announced it plans to oppose the proposed $15 billion merger between TPG and Vodafone Hutchison Australia. Hutchison Telecommunications Australia closed 28.1% lower, following the announcement. 

The Australian futures market points to a 0.22% rise today. 

Overseas Markets

European sharemarkets rose modestly on Wednesday, buoyed by more positive sentiment towards US-China trade talks, along with strong company results from German firms overnight. Siemens rose 4.6%, after the German industrial company posted better than expected earnings and announced its plan to spin off its struggling power and gas business. The German DAX gained 0.7%, while the broad based STOXX Europe 600 and the UK FTSE 100 both rose 0.2%. 

US sharemarkets ended the session mixed overnight, ahead of further trade talks with China, as President Trump tweeted China was "now coming to the US to make a deal". However, earlier in the day the US Trade Representative filed a public notice announcing tariffs on approximately US$200 billion worth of Chinese goods would increase from 10% to 25% on Friday. By the close of trade, the Dow Jones eked out a less than 0.1% gain, while the S&P 500 and NASDAQ fell 0.2% and 0.3% respectively. 

CNIS Perspective

A great deal of attention during the week was focussed on whether the RBA would cut the Official Cash Rate, as a means to stimulate the economy. 

With the cash rate at just 1.5% and interest rates in the broader economy generally low, the amount of ammunition the RBA has, and the impact they can have with lowering rates further, is limited. 

On top of this, the RBA has previously stated it doesn’t want to cut the Official Cash Rate to zero, but instead leave a slightly positive interest rate in the economy, like Canada and the UK. 

From a policy perspective, what has been missing in Australia is our own form of Quantitative Easing (QE). 

QE has been implemented in many advanced, western economies post-GFC and could be implemented by the RBA by printing more Australian Dollars (AUD).

This would have a significant and almost immediate effect of devaluing the AUD, which would make our exports more attractive and stimulate economic activity. 

While a rate cut or two is definitely on the agenda for some time during the year, it wouldn’t surprise us to see an Australian version of QE also implemented at some stage. 

Both measures would boost confidence and weaken the AUD. 

Should you wish to discuss this or any other investment related matter, please contact your Investment Services Team on (02) 4928 8500.


Disclaimer

The material contained in this publication is the nature of the general comment only, and neither purports, nor is intended to be advice on any particular matter. Persons should not act nor rely upon any information contained in or implied by this publication without seeking appropriate professional advice which relates specifically to his/her particular circumstances. Cutcher & Neale Investment Services Pty Limited expressly disclaim all and any liability to any person, whether a client of Cutcher & Neale Investment Services Pty Limited or not, who acts or fails to act as a consequence of reliance upon the whole or any part of this publication.

Cutcher & Neale Investment Services Pty Limited ABN 38 107 536 783 is a Corporate Authorised Representative of Cutcher & Neale Financial Services Pty Ltd ABN 22 160 682 879 AFSL 433814.

 

Topics: CNIS, Dow Jones, Australian Market, ASX, international markets

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