ASX Weekly Wrap 04/12 - 08/12

It was a lackluster week for the Australian markets which saw a small increase for the last five trading days. The positive was we were able to regain all our losses that we experienced from Mon-Wed in the last two trading days on the back of some encouraging local and international economic data. The XJO gained 4.6 points or 0.08% for the week. Our high was 6,012.00 on Friday and our low was 5,938.70 on Wednesday.

It was a very quiet week for corporate news thus nothing worth reporting on that side of the fence this week. This is one of the reasons this will be my last ‘ASX Weekly Wrap’ for 2017 as there is not much to report at this time of the year. We are still waiting on that Santa rally, which may not come this year. The market looks happy to plod along sideways at this point. I will point out that a lot of the banks pay their dividends out to shareholders over the next two weeks (ANZ, NAB, WBC & MQG), hence this may be the catalyst for a late rally as shareholder reinvest their funds into the market. The XJO does look technically poised to break out very soon. We may be at the start of it now, but it’s too early to confirm.

Economically we had some very important sets of data released both domestically and abroad. Starting at home the most important data were the Q3 GDP figures. The figures came in softer than expected but point to an accelerating economy. For Q3 Australia grew +0.6% (QoQ) which was a little behind the +0.7% expected. The yearly figures also came in softer at +2.8% vs the +3.0% expected. However those yearly figures are well ahead the +1.8% we saw last quarter and show a generous improvement in the Australian economy. We still have a +0.2% quarter in the yearly read as well (Q1 2017) hence once that is removed from the equation we should be well above 3% growth, which is right at our long term average. In further good news we also saw Q2 GDP figures revised upwards from +0.8% to +0.9% in what is a traditionally softer quarter. Overall it reiterates what I have been saying for some time now that the Australian economy is improving from its slowdown in 2015/16 and now accelerating. I’d expect our Q4 figures to read very well based on data that has already been released.

We had three more economic data points to talk about for Australia. The first one is the RBA decision last week to hold our cash rate at 1.5% once again. This was the worst kept secret as no one expected anything else. In terms of commentary it was more of the same. They now see some cooling in house prices in Sydney and Melbourne and a slowdown of credit growth. This was what they wanted to see and seems as if APRA measures are doing their job. You will also notice the media has dropped the bubble talk in regards to Australian property. Once again my belief is our next rate move is up, and probably by the end of 2018. RBA will want to see a pickup in inflation and wages for that to happen though. Unemployment figures continue to be strong so I’d expect wages to eventually follow.

The second lot of data came in the form of our retail sales for October which came in surprisingly strong. We had a read of +0.5% for October vs the +0.3% expected and the +0.1% last month. This was great to see as the consumer started spending again. Hopefully this continues into Christmas and the economy gets a real boost. Once again though these figures do not cover all retail sales, for example they don’t cover online, so are a little rubbery. Staying with retail we had Amazon launch here last Tuesday is a quiet fashion. Some prices were a lot cheaper than our retail stores and others were about the same. Obviously Amazon will continue to add items to the site and bring prices down the longer it operates here so the real pain is still to come for our retail stores here. They should get at least one more pain free Christmas though.

Finally our trade balance was released again for October. We made a mere $105mill surplus after a $1.3bill one was expected and we had a $1.6bill surplus in September. Lower prices for Iron Ore & Coal were blamed along with less export volumes. Exports fell 3% whilst imports rose 2%, which further supports the above. We would expect November to be much better as prices recovered and China continued it iron ore splurge.

Looking overseas we saw US job figures released again on Friday night and again they were strong. The US economy added 228,000 jobs for November and the unemployment rate stayed steady at 4.1%. Wages rose +2.5% which was slightly below forecast but right in that range we have seen in the last 12 months. Again the US economy is showing a lot of strength which will lead to a rate rise this week and then probably at least three in 2018, maybe four. This puts US rates at 2.25-2.50% vs our which will be 1.50 – 1.75%. This can only mean one this for the AUD vs and the USD and that is that it will weaken. Ultimately this will be a big bonus for the Australian economy as it makes our exporters look better value as well as tourism and education.

Finally we had the Chinese trade balance for November released which blew most forecasts away. Exports rose 12.3% vs just a 5.0% forecast and +6.9% read last month. Imports rose 15.6% vs 15.9% growth last month and a surplus of $40.21bill vs $35bill expected and $38.18bill read in October. Once again this is very positive for global and Australian growth as the Chinese economic machine continues to roll on and consume our resources.

Looking at the market from a sector point of view it was a mixed week. We had Retail, Telecommunications and Banks all perform well whilst Gold, resources and health care underperformed. Retail had one of its best weeks in a while with most of the Amazon news factored in. Most retail stocks are off 30-50% this time last year hence it was a bit of sell the rumour buy the fact trade. JBH on its own was +6% this week. We may see retail continue to bounce until Amazon starts impacting their balance sheets, which probably won’t be until 2020. I see the opportunity for a trade there in a stock like JBH, but would avoid it in longer term portfolios. Will be interesting to see where retail stocks are at this time in 2018. I’m going to say about the same or higher. Resources were off due to lower commodity prices, which were in turn down due to a strengthening USD.

As I mentioned earlier the XJO looks in a favorable position from a technical standpoint. It’s formed a nice flag pattern which usually sees a break to the upside. This would coincide with dividend money flowing into the market from the banks. It may just be giving the 50 day (blue line) moving average time to catch up as it moved well above it in the last couple of months and it usually trades pretty close to it. It’s also bullish we are holding above old highs at around 5,956. I’d expect us to finish up the year roughly where we are now hanging around that 6,000 mark. My thoughts are we see 6,400 by mid next year and possible old highs by the end of it. I will cover that more in depth in my annual review and forecast special.

Well that does it for the week and for the year as this will be my last weekly wrap for 2017. As most of you know we are expecting our second child around Christmas and have actually been given a firm date of 21/12 for my wife to go in for a C-section should he not arrive earlier. Very exciting times ahead and I can’t wait to be a father second time around. The first time has been such a blessing and something I cherish with every day. I know a second brings its own challenges, but we are looking forward to meeting the little guy and can’t wait for him to get here. I will be taking some time off when he gets here and will send an email around in the next couple of days with my plans. He probably comes at the perfect time as it’s usually dead after Christmas right through until end of January.

I hope you all have a fantastic Christmas and New Year and enjoy these times spent with family and friends. Most of all stay safe and come back to us all in one piece in 2018. Thank you for all your support throughout 2017. Whether you are a client I do business with, a fellow advisor or someone I’ve interacted with over social media your support means the world to me. I hope to speak with you all in early 2018. Go Crows!

heath@hlminvestments.com.au

0413 799 315

Important Notice

Any advice in this article should be considered General Advice only and does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. I am happy to assist you in this process. To do so, I will need to collect personal and financial details from you before providing my recommendations. Please note the author may own shares in the companies mentioned in the above blog.