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Market Wrap 16/03/2018

By: Jason Shao


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Equities:

Australian markets started off well in the week, responding to the potential tariffs that would be imposed by Donald Trump. Over the weekend, it was announced that steel tariffs would not be imposed on Australia over Donald Trump’s tweet. Monday morning saw the ASX 200 increase 0.9% on open, however, over the week, it became more subdued, finishing slightly lower at 5,949. This week also saw rebalancing of indices around the world by S&P, including our own ASX 200, with the biggest news relating to Myer falling outside of the ASX 200 for the first time, with its market capitalisation sitting at only $350 million, falling 60% in the past year to 42 cents.

Also, there is a potential policy change by the Australian Labor Party, who proposed to remove dividend franking refunds to those who don’t pay no tax, aimed at wealthy SMSF investors. Currently, you are entitled to receive franking credits attached to your dividend payments, even if you pay no tax. Many SMSF retirees pay no tax on their income streams, and also receive refunds from government, however that may be set to change as Labor estimates a saving of $59 billion over the next decade due to this policy.

Major news this week with Wesfarmers, a large Australian conglomerate with brands including Coles, Officeworks, Target, Kmart amongst others, announced on Friday that it planned to sell off its largest brand Coles for $19.4 billion. It will retain a 20% stake in the business, expecting to sell in the 2018-19 financial year. More news to come.

Commodities:

Iron ore slipped from $78 USD per tonne highs, dipping 10% to a low of $71 USD per tonne during the week, finishing at approximately $73 USD per tonne. Current confusion between strong China demand and Trump-led fears places uncertainty over commodity prices over the short-term. WTI crude oil sat at $61.05 USD per barrel, remaining fairly flat over the week.

Forex:

The Australian dollar had strengthened against the US after the tariff news was released, as previously mentioned. From a low of 0.776 AUD/USD two weeks ago, now had clawed back losses to sit at 0.786 AUD/USD. Current estimates predict four rate hikes by the US in 2018 alone, and could send the USD higher over the year.

Bonds:

US Treasures moved upwards over the week, with 10Y yields falling from 2.89% to 2.80%, which is the lowest since early February. This move comes after the trade-war scares last week, which saw yields increase. Australian 10Y government bonds also fell from 2.78% to 2.72%, the lowest since early January. Australian yields have been sliding from highs of 2.94% since early February. European bonds still continue to fall amidst the Italian election worries, and will be one to watch.

Other Assets:

After breaching the $10,000 USD again briefly only a few weeks ago to a high of $12,000 USD in the past month, bitcoin had continued to tumble to $7,800 USD. Online search results for “bitcoin” fell 82% from December highs, and prices also tumbled when Google announced it would prohibit cryptocurrency ads, following Facebook’s move in January. Allianz earlier this month said that the “coin’s intrinsic value must be zero”.

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