Global equities were volatile over the past week, with equities initially rallying on the back of the weekend agreement between the US and China to delay the imposition of new tariffs for 90 days, designed to allow a more substantial agreement on trade and intellectual property to be worked out.
Subsequent tweets from US president Donald Trump then cast doubt on the ability of an agreement to be reached, and the flattening of the US yield curve – potentially warning of a recession - saw US equities sell off sharply ahead of Wednesday’s market shutdown to mourn the passing of George H.W. Bush.
Longer-dated government bond yields fell as US inflation and rate hike expectations were wound back and the US Dollar weakened against other major currencies. The RBA remains on hold and continues to await further progress ‘reducing unemployment and having inflation return to target’.
The RBA remains on hold and continues to await further progress ‘reducing unemployment and having inflation return to target’.
There’s little new domestic information in yesterday’s RBA monetary policy decision statement – mostly tinkering on the edges to adjust for the latest data, which appears to be view-confirming for the RBA.
On the domestic economy, the RBA’s view remains unchanged. “The Australian economy is performing well”, the “outlook for the labour market remains positive”, unemployment is expected to improve and inflation is expected to reach 2.25 per cent in 2019.
However, this was before today’s weaker-than-expected GDP figures, now 2.8 per cent year-on-year, which make the RBA’s forecasts that GDP growth will “average around 3.5 per cent over this year and next”, likely to be revised lower when the RBA publishes its next forecasts.
The most interesting development in the RBA statement was the acknowledgement that ‘credit conditions for some housing borrowers are tighter than they have been for some time, with some lenders having a reduced appetite to lend’.
The shift in language suggests the RBA is more willing to discuss reduced housing credit supply.
On international conditions, trade risks have resulted in signs of a slowdown in global trade, while credit spreads have widened – on the margin, the global picture is therefore a touch softer.
Further, commodity prices have declined considerably in recent weeks. This suggests some downside to the outlook for international growth, the terms of trade and hence the currency, although the RBA continues to simply note the Australian Dollar ‘remains within the range that it has been in over the past two years on a trade-weighted basis’.
GrainCorp (GNC) announced that it received a non-binding, indicative takeover proposal from Long-Term Asset Partners Pty Ltd (LTAP) for $10.42 per share, valuing the company at $3.3 billion dollars.
At this time the market has very little information about LTAP.
The entity has been set up to make long term investments and it has been stipulated that they do not intend to sell any of GNC’s assets if the takeover proceeds.
The takeover offer sent GNC’s shares rallying up 26.71 per cent to close at $9.25.
The board has advised shareholders that no action is required at this time.
- This article does not take into account the investment objectives, financial situation or particular needs of any particular person. Accordingly, before acting on any advice contained in this article, you should assess whether it is appropriate in light of your own financial circumstances or contact your financial adviser. Christopher Hindmarsh is an adviser at JBWere Limited. JBWere Limited is owned by National Australia Bank Limited.
