What we liked
- Donald Trump delivered his first State of the Union address to help calm a sceptical public. Trumps approval ratings have hit record lows, so rather than lashing out at those that oppose him, Trump delivered his address with a calmer more respectable tone. He said “That torch was now in our ands… and we will use it to light up the world.” The real question is whether he will stick to his unifying speech or was it just a well-prepared speech delivered by a gifted politician?
- According to Thomson Reuters, 4Q earnings growth for the S&P 500 is now tipped to hit 13.2% up from 12% at the start of the year. From the 133 companies that have reported through Friday, 79.7% have beaten expectations. McDonalds, Facebook and Nintendo were just some the companies that topped expectations. Facebook beat earnings and sales growth estimates but shares sold off after CEO Mark Zuckerberg said changes to its News Feed reduced users’ time on the site by 50 million hours every day. PayPal posted a 30% EPS gain for the 4Q. Amazon also beat expectations reporting revenue of $60.5bn and EPS of $3.75 both well above analyst expectations, however the company’s bottom line was boosted by a $789 million windfall related to the recent tax reform law.
- Citi’s Australian equity strategist has upgraded its ASX target to 6600 by the end of the year up from 6400. The upgrade came on the back of higher commodity prices and earnings forecasts for resources companies that have yet to be fully incorporated, the broker estimates a further 5%-10% upside to the market’s earnings over 2018. The team is also optimistic on the global economic outlook saying “we remain bullish on the outlook calling for above-consensus global growth (3.4% in 2018 and 3.3% in 2019) with steady inflation and moderate monetary tightening”. Growth is likely to come from higher energy prices, wages and interest rates.
- The big four banks have all lodged submissions with the Banking inquiry. In these submissions, the banks have summarised misconduct incidences that have occurred over the last ten years. The commission will call upon victims of bad bank behaviour to share their stories. The royal commission is due to deliver an interim report by the end of September and a final report in approximately 12 months’ time. ANZ CEO Shane Elliott said in a note to staff that it was “completely unacceptable” the bank had caused undue harm, pain and significant failures over the last decade to its customers. However the victims of misconduct won’t be able to resolve individual disputes or receive compensation.
- The Future Fund has reduced its cash balance in favour of equities to jump on the bandwagon and ride the wave of good returns. The fund reported an annual return for 2017 of 8.8% with $139bn which was above its 6.4% target. The good returns came on the back of global growth which drove stock markets higher. The fund’s chairman, Peter Costello, said the final quarter of 2018 had been a positive one for the global economy and stock markets. The Future Fund is now taking on more risk and has increased its exposure to equities to above 50% for the first time in two years.
What we didn’t like
- Global markets were hit hard early on in the week marking the biggest two-day fall in 16 months which came on the back of weaker oil prices and rise global borrowing costs. US Treasury yields which are the benchmark for world lending rates, hit a 4 year high of 2.73%. This caused a 1% sell off on Wall Street led by healthcare stocks after Amazon.com, Berkshire Hathaway and JPMorgan partner to cuts US healthcare costs. Health insurer UnitedHealth and drug maker Pfizer were hit hard early on in the week. Investors who were startled by 540 point fall on the Dow, switched to the safety of US government bonds. The market is getting somewhat concerned about inflation which has led investors to believe that the US Federal Reserve may go hard when it comes to raising rates.
- Cryptocurrency exchange Coincheck has had $500m in digital tokens stolen. The theft has heightened calls for stricter oversight at a time when many governments are looking to ban Bitcoin and other cryptocurrencies. Coincheck has assured its customers that they would be partially reimbursed but investors say this is a problem that is likely to persist and it’s about time something more permanent is done. A cryptocurrency called Tether is a stablecoin designed so that it doesn’t fluctuate in value and is pegged to the US dollar. Trading bitcoin can be slow and costly but tether is simple, cheap and fast. The only problem, Tether has failed to prove its reserves and doesn’t know how many units it has. If tethers are not backed by a matching number of dollars, theoretically it can print an arbitrary amount of money. The fear is that a loss in faith in Tether could cause a crypto type of bank run. Bitcoin could crash by up to 80% if it turns out the price has been artificially pumped up by Tether. It’s been describe as a ticking time bomb.
- A report by HLB Mann Judd found that initial public offerings (IPO) on the ASX have fallen by 46% in 2017 and this trend is set to continue this year. There were 110 IPOs on the ASX in calendar 2017 up from 94 in 2016 but the amount raised was only $4.1bn down from $7.5bn the previous year. The 3 year average $6.2bn. The IPOs last year were of smaller value and there weren’t any above the $1b mark. Whereas in 2016 IPOs like Ingham’s listed with a market cap of $1.2bn. There are approximately 37 companies waiting for approval for ASX listing.
- GetSwift – Investors are anxiously waiting for the company to release the results of a review of its continuous disclosure processes by PwC following an investigation by The AFR. The investigation revealed GetSwift’s convention of announcing contracts to the ASX but failing to announce when these contracts came to an end. The update will also address questions raised by the ASX in its correspondence with the company. GetSwift shares last traded on January 19 at $2.90. Well below the $4 price it raised $70 million of capital last December. Shares are in suspension until the update.
- The US 10-year Treasury yield rose to 2.79% following the Federal Reserve’s policy statement. It was interpreted as being hawkish. The Fed said that it was leaving its benchmark interest rate unchanged at 1.25%-1.5% which is still relatively low and will help jobs growth and stronger inflation. The decision was widely expected. The Fed’s outlook is still upbeat and will set the stage for a rate hike in March. Australia however, is locked in its lowest period of inflation since the 1990’s and it could last for another two years. This means the Reserve Bank is unlikely to lift interest rates until 2019 despite moves by the US Federal Reserve.