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Weekly market review

Written and accurate as at: Sep 19, 2017 Current Stats & Facts

The S&P/ASX 300 gained +0.4% last week, snapping a streak of incremental weekly declines. Bond yields bounced back from their recent lows on a sense that rebuilding in the wake of hurricanes Harvey and Irma would provide a boost to US economic growth. There was also some chatter about President Trump’s potential ability to do a deal with Democrats in order to allow the passage of tax reform. US 10 Year Treasury yields bounced from 2.05% back to 2.21% and the implied chance of the Fed hiking rates in December climbed from 35% to 50%. Bond-sensitive infrastructure stocks in Australia underperformed as a result; Transurban (TCL) shed -3.6% while Sydney Airport (SYD) was off -3.1% and the S&P/ASX 200 A-REIT index was flat (0.0%).

North Korea’s bellicosity has seen the gold price gain almost 10% since the start of July, however it gave back 2% last week despite yet another missile test by Pyongyang. Likewise, gold miners Newcrest Mining (NCM) (-3.9%) and Northern Star (NST) (-7.8%) gave back some of their recent strong run. The rest of the Resource sector fared little better. Both the iron ore and copper prices fell -3%, which saw the S&P/ASX 300 Metals & Mining index fall -2.9%. BHP (BHP) (-3.8%) and Rio Tinto (RIO) (-2.5%) both underperformed the broad market, while in Fortescue’s (FMG) (-4.5%) case, commodity price weakness was compounded by the announcement that its CEO would be standing down. He had been in the role for six years and guided its rebound from a near-death experience. As is often the case in these circumstances, the market’s concern is that his departure signals that things are as good as it is going to get at the company. Copper miner Sandfire Resources (SFR) fell -8.4%.

The possibility of a shareholder class action against the management of Vocus (VOC) (-7.5%) weighed on the stock, which is now down -67.0% over one year. AGL Energy (AGL) (-4.5%) was another high-profile underperformer, with the market expressing concern about the company’s disagreement with the Federal government over the fate of its Liddell power station in the Hunter and, more broadly, over the level of public scrutiny attached to high power prices. Private hospital company Ramsay Health Care (RHC) (-4.8%) was also weak, on fears that potential government regulation to reduce the cost of medical prostheses may hurt earnings. While there is some risk here, historically hospitals have been able to pass on cost reductions to device makers. Building products maker James Hardie (JHX) shed -4.0% following its investor trip to the US. While management reiterated their commitment to longer-term market share targets, they did adjust their explanation for how these will be achieved, essentially acknowledging increased competitive intensity within the industry.

The banks outperformed over the week, supporting the broader market. Commonwealth Bank (CBA) (+4.2%) bounced back from recent weakness, while ANZ (ANZ) (+3.6%), National Australia Bank (NAB) (+2.8%) and Westpac (WBC) (+2.0%) all outperformed. Gaming company Tabcorp (TAH) (+8.2%) gained following the publication of a scheme booklet which provided further detail on its proposed takeover of competitor Tatts Group (TTS) (+2.8%). TAH management remain confident that the deal can take place on November 1, although the outcome of an appeal against the deal by the ACCC is still pending. Macquarie Group (MQG) (+5.8%) also outperformed following a trading update.

The UK pound sterling (GBP) strengthened last week, helping several companies with offshore exposure such as Computershare (CPU) (+5.3%) and NAB spin-off CYBG (CYB) (+5.3%) which owns and operates the Clydesdale Bank and Yorkshire Bank brands in the UK. Lendlease (LLC) (+5.6%) also did well on momentum around the construction theme.

There was some movement within the media sector. The government’s proposed changes to the reach rules – which limit the degree of ownership across formats and exposure to the total population – moved a step closer as they gained Senate acceptance. If passed by the Lower House, the changes could prompt consolidation within the industry, perhaps quite swiftly after their promulgation. Meanwhile the consortium of Lachlan Murdoch and Bruce Gordon announced a counterbid for Ten Network (TEN), currently due to be sold to US network CBS. 

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