Investment Matters

What matters this week: US rates up

On international markets, the focus was on two main events this week. 

The first was not so much the US Federal Reserve increasing interest rates (that was expected), but the outlook - with some fearing a more aggressive outlook for future interest rate increases would be intimated.  The market was calmed on Australia's Thursday following reassurances of no change to the outlook of two further rate increases this calendar year. 

Also calming the market on Australia's Thursday was that the more extremist / popularist elements have not done that well in the Dutch election (see Wry & Dry for more).

The graph of the week is Westpac-Melbourne Institute Consumer Confidence, with 100 indicating neutral - neither optimistic or pessimistic.  Since last November we have seen slightly pessimistic sentiment.


Interestingly, concern expressed by some (e.g. the RBA, various economic commentators)  about Australia's hot housing market  (Sydney and Melbourne in particular) may be gaining some traction in the broader community - with sentiment about investing in housing declining significantly.   Family finances (people's own financial position) data was not that positive either.  Perhaps low wage growth has started to bite.

Moving to matters on Australia's stock market, Rio Tinto and BHP Billiton breathed a sigh of relief at the start of this week, following WA's election result.  The Nationals' proposed mining tax is now dead, with the Nationals leader, Brendon Grylls (of the Pilbara electorate) losing his seat and the Nationals polling poorly.

And further happiness ensued for the miners, with the iron ore price defying expectations (and perhaps logic), rising above US$90/t.  Rio Tinto, Fortescue and BHP Billiton are Australia's major producers of iron ore.

Myer advised that it had negative like-for-like (same store) sales growth for Q2, and furthermore sales in January and February had been below expectations.  This was not received well by the market; -5.6% yesterday when the announcement was made.  However, the company did confirm it is on track to meet its year end earnings estimates (by driving margins with continued cost outs).   The share price recovered in trading today - perhaps as the short sellers realised things are bad, but not bad enough for them to make money.

The hot topic of the week has been energy security, with gas prices and availability being a major element.  Brickworks has a building products division, which manufactures Austral bricks, roofing and many other building products.  They made a stark announcement highlighting that gas prices risk forcing the company to move manufacturing offshore. 

And to wrap up - the banks of course.  This week mortgage holders, particularly investors, face a double whammy - higher interest rates (NAB increased the investor rate by 0.25%) as well as tighter lending restrictions, such as higher LVRs. These measures highlight that the banks are similarly facing their own double whammy - rising funding costs (global interest rates), and increased regulatory action (both formal regulation with BASEL 4, and macro-prudential such as investor lending restrictions).