What we liked

  • This week investors cheered 10 years since the ASX pushed past 6000 points for the first time since the GFC. The last time the All Ords pushed above 6000 points was in August 2007. It’s an important milestone for the index and the rally was driven by bullish momentum in global markets
  • US Q3 earnings season has kicked off strongly. Good results should help carry forward the ongoing bull market. Revenue growth so far is running at 6% and EPS at 8%. JP Morgan expects earnings to Outperform sharply lower expectations. Morgan Stanley also believes earnings expectations are too low.
  • Amazon shares rose by a whopping 13% above $1100 after it posted an impressive September Q result. The market is becoming more and more confident that its success will continue because of its proven ability to invest in new opportunities. Amazon posted 3Q earnings per share of 52c which beat estimates driven by strong Amazon Prime signups. In its report it revealed that it employed 541,900 people which makes it larger than 63 countries such as Iceland, the Bahamas, and Monaco.
  • The price of Bitcoin hits another high pushing past the US$7,000 (A$9800) mark for the first time rising sevenfold since the start of the year making it the mother of all bubbles. The recent rally was driven by news that the world’s largest derivatives exchange operator CME Group is to launch bitcoin futures.
  • ANZ and NAB have ended their rate rigging settlement discussions with ASIC. Both banks settled for around $50m. WBC hasn’t settled yet and is coming under pressure to follow suit. It is expected to tell the Federal Court that the allegations have no merit. CBA isn’t involved.
  • Citi is forecasting the ASX 200 Index to break through 6000 and reach 6250 by mid next year with moderate medium-term earnings growth and the possibility of a correction with rising interest rates.
  • Macquarie Bank is issuing low-priced mortgage packages to take on the big four banks and build market share.
  • The Aussie dollar has fallen to US76.81c with Capital Economics expecting it to fall to US70c next year as interest rates begin to rise in the US. GDP and inflation won’t be enough to warrant higher rates here.
  • The ACCC is urging the Federal Government to either write down the value of the NBN so it is able to charge lower prices or pay for hard-to-connect households directly through budget handouts. The NBN requires $52 a month from retail services to recover costs. NBN currently collects an average $43 a month. A $50bn write down would give the NBN much needed breathing space.
  • China has lifted its partial ban on Aussie beef from 6 abattoirs. Beijing banned exports due to a labelling error. The affected plants accounted for 30% of Australian beef exports to China. So it’s good news that the facilities are back in full operation.
  • Three of the big 4 – CBA, WBC and NAB are working closely together to set up new payments app that will let customers transfer money to each other instantly. ANZ however, is the odd one out that has not joined the alliance and has instead signed up with Apple.
  • Australia Post has grown its relationship with the world’s biggest online retailer Alibaba to help strengthen trade between Australian businesses and consumers across South-East Asia.
  • Brent Oil has held above US$60 a barrel hitting its highest point since mid-2015 on the back of OPEC product cuts which will be extended past March.

What we didn’t like

  • Whilst ETF’s are becoming more and more popular with investors, there is a rising chorus of analysts who are concerned that the next major market crash will be triggered by ETFs. Active managers are on the bandwagon as well, saying the booming popularity of ETFs will cause the next major market meltdown as its inflating already high valuations.
  • North Korea claims two US bombers have flown surprise strike drills in an effort to threaten and blackmail Kim Jong-un’s regime.
  • Myer (MYR) keeps on delivering bad news. This time the retailer lowered the bar for success of its turnaround plan after it didn’t meet growth targets it set two years ago. Despite its failure it insists its strategy is sound.
  • Domino’s Pizza (DMP) – Shares have fallen after the Fair Work Commission terminated deals with workers under which they were paid less than minimum award rates.
  • According to agribusiness bank Rabobank – Dry weather is more than likely to have lowered Australia’s winter crop by 41% compared to the record crop in 2016/17.
  • Shares in PetroChina have tumbled to an all-time low. The state owned energy producer has lost US$800bn in market value, making it the world’s largest loss of shareholder wealth. The stock has fallen because of China’s shift in economic policy away from carbon to renewables and electric vehicles. With oil’s 44% fall over the last ten years shares are still trading at 36x estimated 12 month earnings which is still considered too high.

Market Indicators