What we liked

  • The ASX 200 index continues to march higher driven by signs that the global economy is expanding and China’s demand for commodities is intact. Geopolitical events such as North Korea and Catalonia remain on the back burner. Stocks on Wall Street continue to make new highs. European shares too hit their highest mark in nearly four months. The message here: stocks are soaring and market volatility is low.
  • The Australian unemployment rate has fallen to 5.5% in August which was above an expected 5.6%. There were a 19,800 jobs added ahead of expectations for 15,000. There were 6100 more full-time roles and 13,700 part-time and the participation rate was 0.1% of a percentage point lower to 65.2%.
  • Iron ore rose this week shaking off bear market concerns. Most other metals such as gold, copper and nickel rose too. Factors also driving markets are Chinese economic data, RBA minutes and unemployment data.
  • Federal Reserve chair Janet Yellen has confirmed that rates will be lifted at a gradual pace as solid growth, a robust labour market and solid global economy will help increase prices despite inflation being low.
  • According to ASIC, Australians are cutting back on interest only lending. Demand has fallen by more than 60% as interest rates are rising and lending standards are tightening. Banks have raised interest-only rates more than 100bps in the last year.
  • The infrastructure boom is set to replace the housing boom. Macquarie Wealth Management’s strategy team expects $237bn to be spent on infrastructure projects over the coming four years. This boom won’t be as spectacular as the mining boom but it will give the economy a boost. The way to gain exposure is through builders, materials suppliers and infrastructure providers. Stocks such as CIMIC, Boral, Adelaide Brighton, Downer EDI, Worley Parsons, Transurban, LendLease, ALS, and Mineral Resources.
  • Oil prices have risen after the Iraqi Government captured the major Kurdish-held oil city of Kirkuk. As Iraqi forces advanced, Kurdish operators temporarily closed 350k mboe per day of oil output at two large Kirkuk fields. This caused a rise in Crude oil which is now trading at US$57.83.
  • Netwealth is listing on the ASX via a $250 million-odd raising. The bookbuild was well oversubscribed at the top of the $3.10 to $3.70 a share price range. Fundies have been told to expect a $3.70 a share deal.
  • China’s economy has recorded an annualized GDP figure of 6.8% and maintained steady growth in the 3Q but did so on the back of a massive injection of credit from the government and banking sector.
  • Jacinda Ardern – In just 3 months the 37-year-old will become New Zealand’s new Prime Minister after winning the backing of a small nationalist party that wants to curb the effects of capitalism.
  • Efforts undertaken by Saudi Arabia and Russia have led to oil prices rising to above $US50 per barrel. Russia is ready to back an extension of the supply cuts by Opec and its allies until the end of 2018 that came into effect January.

What we didn’t like

  • ASIC has cast a spotlight on AGL Energy (AGL), Origin (ORG) and Energy Australia over their control and power over wholesale prices. It found that their stranglehold on the has led to non-vertically integrated retailers having limited access to risk management products, and outcomes for consumers and businesses are being driven by pricing practices that are not consistent with vigorous competition. There has been a 63% increase in electricity prices over the last 10 years. The Turnbull Government is due to unveil its new energy policy this week.
  • Markets have positioned themselves for a December rate rise, however last Friday’s September inflation and retails sales data was disappointing, missing expectations on both occasions. This caused an instant drop of 4bps in the US 10 year bond yield to 2.27% and a rise in gold. It also caused the chances of a US rate hike to drop to 72%. We know markets don’t like uncertainty.
  • The New Zealand Dollar has plummeted amid uncertainty over the country’s new government and Reserve Bank of New Zealand’s new mandate. The Kiwi is trading at US70.30c. Winston Peters on Thursday turned the Kiwi political landscape upside down, denouncing modern capitalism and forming a Coalition government with the Jacinda Ardern-led Labour Party, along with the support of the Greens.
  • It’s the end of an era for Holden with the last vehicle to roll off production lines. It’s also the end of Australian car manufacturing. The Holden production line in northern Adelaide will shut down by the end of this week, ending 69 years of Australian-made car manufacturing. It’s a sad day for both Holden and Australia. The plant opened in 1963 and produced 780 vehicles per day, including the VY Commodore, the Adventra, Crewman, Caprice and Statesman.
  • North Korea has asked Australia to turn away from US President Donald Trump. Yeah right. Media has confirmed reports that Ms Bishop confirmed the September 28 letter from North Korea’s Foreign Affairs Committee arrived via the country’s Jakarta embassy.