A sad day


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US markets

The terrible news in NZ (more on the terror attack below), did not stop the US markets rising on Friday after sentiment was bolstered by a Chinese news agency reporting Washington and Beijing had made substantive progress on trade talks. The technology sector led the rebound, which pushed the S&P500 to its best close in a given week since November. The Philadelphia SE chip index, or SOX, climbed 2.9%, while the S&P500 technology index rose 1.2%.

The SOX is leading the US indices on the upside and staged a breakout on Friday. We need to see more follow through momentum, but the technical price action is encouraging.

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The market managed to shrug off US data showing manufacturing output falling for a second straight month in February and factory activity in the state of New York slowing. The Dow Jones rose 0.54%, while the S&P500 and Nasdaq jumped 0.50% and 0.76% respectively. For the week, the S&P500 was up 2.9%, the Nasdaq was up 3.8%, and the Dow was up 1.6%.

The S&P500 also cleared heavy resistance on Friday at 2800, but like the SOX, we need to see further upward momentum. The next target is 2900, which seems a reasonable probability in the weeks ahead.

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Australian markets

In Australia the market ended the week on a flat note, and it really was a “day of sadness”, shock and disbelief, following the atrocity committed across the Tasman by a lone wolf gunman in Christchurch. Our thoughts go out to the people and families of all those that have suffered, following as New Zealand Prime Minister Jacinda Ardern aptly described it, one of the country’s ‘darkest’ days.

Scott Morrison also spoke well, in extending his sympathies, and in observing that New Zealanders are also considered part of ‘our’ family. I myself am a kiwi with a lot of family in Christchurch, as is Greg who also hails from the city. Christchurch is a city which had still been enduring the long recovery from the trauma of the brutal earthquakes just 8 years ago. The city no doubt will once again unite, with the community coming together following this despicable act, in what is statistically one of the safest countries in the world. 

The attack is a reminder again of the world we live in, and that fanaticism knows no borders. The fact the act was streamed live on Facebook by the perpetrator also highlights the perils of a social-media dominated age. Some responsibility needs to be taken here, and I think that PM Morrison is right to call social media companies need to take further steps to ensure this can never happen again.

Sure, Facebook has over 2 billion users, and removed 1.5 million videos of the footage, but for one of the world’s leading technology companies, the 24 hours it took to do so was too long. If there is indeed no way to prevent what occurred with the footage, then live streaming (at the very least) should be banned until adequate processes and technology is in place to ensure that it can be.

On the ASX200 was flat on Friday, off just 0.07% to 6175. After a strong run in January/February, the market has been relatively static this month, with overhead resistance somewhat stern, but as the benchmark undergoes a period of consolidation which is probably needed. This is also while the trade situation had gone quiet, with a resolution pushed out to next month, and while Brexit continues to drag on. The FOMC meeting is as I have written the next ‘big picture’ item for markets.

The large diversified miners were weaker on Friday, with BHP, Rio, and South32, all down around 1% for the week. Fortescue held up better, down just 0.3% over the five sessions. Iron ore prices remain elevated, and also look set to see further support as falling Chinese steel stockpiles underpin a production lift. On the supply side we may also see a further bid as the impact of the Vale mine suspensions hit home – for the moment these are being masked as the iron ore producer sells down inventories.

South 32

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Asian markets

Turning to Asia and the key indices finished the week on a positive note, after the Bank of Japan appeased traders by keeping monetary policy steady as expected and prospects for more stimulus in China and resolution of the trade battle. In Greater China, the key Hong Kong benchmark advanced 0.56%, while the Shanghai Composite closed 1.04% higher.

On Friday, lawmakers of the National People’s Congress approved a draft of a new foreign investment law to come into effect January 2020. That sent a reassuring signal that China is seeking to address issues raised by the Trump administration and move close to inking a new trade deal. And Premier Li Keqiang told reporters that Beijing will try to “provide effective support to the real economy,” boosting hopes for more stimulus measures.

Meanwhile, according to Xinhua, China’s state-owned news agency Vice Premier Lui reportedly had a constructive talk with US Trade Representative Robert Lighthizer which made further “substantive progress.”

Macro data showed the average prices of new homes in 70 Chinese cities increased by 10.4% annually in February, marking the strongest annual gain since May 2017 and making it 46 consecutive months of year-on-year gains.

China newly built home price changes (YoY):

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UK and European markets

In London, the FTSE 100 extended gains on Friday, closing 0.60% higher. Sentiment was supported by US-China trade deal optimism and the House of Commons voting overwhelmingly in favour of seeking an extension to the Article 50 deadline of March 29. It was a quiet day on the local economic releases front.

On the other hand, it was a dramatic week in the House of Commons, with three nights of debates and significant votes. One key takeaway was that an amendment to hold a second referendum was crushed by 334 votes to 85. The Labour party decided to abstain from that vote.

With lawmakers now having voted to seek an extension to the Brexit deadline, the UK will need to get unanimous sign off from the EU27 members. That is expected to occur, although there will likely be some grumbling and conditions attached. Theresa May will hold a third “meaningful vote” next week on her Brexit deal, which if passed would lead to the UK requesting a short extension, likely until 30 June 2019.

However, it is widely expected to be again voted against, in which case a longer extension is likely to be sought, possibly for two years or so. The main upshot from this chaotic and complex series of votes is that lawmakers have now made it clear they don’t want a no-deal Brexit, with a delay by far preferable.

On the corporate front, shares of homebuilder Berkeley Group advanced 1.9% after providing an update that the four months to the of February had been “consistent with that experienced over the last two years.” The company has built up plenty of cash on the balance sheet and said it expects to have £860 million in net cash by the end of its April financial year.

It is currently “assessing a number of opportunities” and I would wager some type of additional capital return will be one. This buoyed other stocks in the sector like Persimmon and Taylor Wimpey. Our analyst team has been bearish on the sector since the Brexit referendum and that has been the right call. A benign Brexit outcome could see funds return to the sector though.

Price comparison website Moneysupermarket.Com Group continued its recent strong momentum, adding 2.3%. Earlier in the year the company reported an impressive set of 2018 full year numbers, with improvements in several key metrics. The company also lifted its divided and said it will return an additional £40 million to shareholders by a share buyback.

Major indices in continental Europe closed higher on Friday, supported by Brexit and US-China trade talks news flow. Credit Suisse’s equity strategy team reportedly lifted their recommendation on European cyclicals relative to defensives from ‘benchmark’ to ‘overweight.’ The thesis was that some data trends such as European purchasing managers indices had likely already bottomed just as China’s economy appears to be stabilising. The pan-European 600 index advanced 0.68% and the blue-chip Euro Stoxx 50 gained 1.32%.

Economic news was light at the end of the week, with Eurostat confirming an earlier estimate of the bloc’s CPI for February. The annual inflation rate was 1.5%, slightly above the nine-month low of 1.4% in January. Service inflation slowed, while energy and food prices saw increases accelerate. As with other most major economies, there was nothing in these figures or related price data that would prompt the central bank to become more hawkish at this juncture.

Euro Area inflation rate (YoY):

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International companies in the news

The second largest Swiss-bank, Credit Suisse (SWX.CSGN) is making a bolder push into International Wealth Management division according to recent reports. Staff at the unit have revealed that the divisional head has announced higher targets as part of a drive to deliver a fourth consecutive year of profit growth.

The bank’s International Wealth Management unit has been one of the brightest spots in the bank’s ongoing three-year restructuring under the leadership of CEO Tidjane Thiam. In fact, the unit is seeing growth across major regions, especially in Asia-Pacific, which saw net inflows of CH₣5 billion (~US$5bln) to assets under management (AUM). Average AUM for Asia-Pacific was 11.5% higher than last year and compared favourably to the group level’s 7.0% increase.

This widening gap is due to the rapid growth of wealth in the Asia-Pacific region, which is still largely underserved by the world’s big investment banks. Also globally, the ‘wealth’ sector grew at a pace of around 4.6% in 2018, which outstrips an increase in global GDP of around 3%.

Credit Suisse

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Carpe Diem!

Angus

Disclosure: Interests associated with Fat Prophets hold shares in BHP, Rio, South32, ANZ, CBA, Saracen, Evolution, Stockland, Nine Entertainment, Nufarm, Apple, Amadeus, Baidu, Credit Suisse, CNOOC, Inpex, MGM China, Nintendo, Sands China, Square Enix, THK Co, Wynn Macau and Yaskawa Electric.