Investment Matters

What matters this week: interest rates and the AUD, Myer (again), Bellamy's (again)

This week, the US market continued its resilience - reaching new highs (again).  This is as key health care legislation fell over, with members of Trump's own Republican Party boycotting the proposed bill.   The much heralded reform agenda trumpeted by Candidate Trump was the basis of a bull market when he came to office.  However, his agenda has failed to come to fruition.  The market doesn't seem to mind terribly.  For the moment anyway.

To domestic matters, interest rates were a focus this week.  The RBA's Jul-17 meeting minutes were released.  They were quite upbeat regarding the economy.  There was discussion regarding what Australia's neutral interest rate setting is (3.5%, which is 2% above the current rate), which read-between-the-lines was taken to mean everyone should prepare for higher interest rates.  PM Turnbull got on board - highlighting that Australian's (in particular residential mortgage holders) should prepare for higher interest rates, and saying people should not get over-committed (aaah ring ring, it is a little late for this warning!).

The Australian dollar rallied strongly this week - perhaps supported by the RBA's comments on the economy.  But perhaps more driven by a weaker USD.  It is at 0.795 to the USD as we go to press.  It started the week a little over 0.78, and is at a high for the year.

The old favourites were in the news again this week.  Myer announced another profit downgrade as retail trading conditions continued to be weak.  It also announced writedowns associated with investments in TOPSHOP and sass&bide. 

Bellamy's started trading again, along with its efforts to finalise the equity raising - which part of the proceeds are for the acquisition of the Camperdown canning facility.  Efforts are now being made to reinstate the Chinese approval for the facility.  The share price finished down 6.4% for the week.

The two other news stories of the week were Fletcher Building and Santos.  The former had losses on some major projects, and writedowns of its Australian Iplex and Tradelink businesses.  The CEO has also departed.   The latter has been under pressure for various reasons - but debt levels and gas shortage for LNG export are two key ones.  The company released its second quarter activities report, showing positive trends in cost of production, and production volumes. Significant challenges still remain.