Investors experienced volatile trading conditions last week with US stocks posting daily swings of more than 1 per cent for most days of the week to close flat, just 0.1 per cent higher. In Europe the STOXX 600 index lost more than 3 per cent for the five days and the Australian share market closed just above 5150 points, down 1 per cent for the week.
ECB decides to cut the deposit rate by 10 bps
European Central Bank president Mario Draghi cut the deposit rate by 0.10 percentage point, to -0.30 per cent on Thursday. Draghi also extended its bond purchase program of €60 billion per month by six months. The stimulus fell short of market expectations as some investors have hoped for additional stimulus. Following the announcement, global stocks sank and the Euro surged against most currencies after posting one of its worst months so far this year. The ECB chief later commented that the rate cut was ‘not meant to address market expectations’ and added that the stimulus is not necessarily the last one.
ASX falls 1% for the five days
The local share market experienced high volatility as well, mainly influenced by overseas events. The biggest losers of the week were Dick Smith (ASX:DSH) and Spotless Group (ASX:SPO) which fell sharply after disappointing trading updates. However embattled companies such as Metcash (ASX:MTS) and Seven West (ASX:SWM) rebounded.
Spotless Group Holdings Limited (ASX:SPO) lost ~43 per cent during the week after the company released a profit warning stating that its full year profits could fall by 10 per cent due top 'tighter economic conditions' . This announcement came as a major disappointment as investors expected the company to post ‘materially higher’ profit for the year.
Dick Smith (ASX:DSH) lost 40 per cent following its decision to write down $60 million or 20 per cent of its inventory against its half yearly accounts. The retailer has now resorted to desperate discounting of up to 70 per cent on its online and in store merchandise. This might induce a price war among its competitors like JB Hi-Fi and Harvey Norman and force them to start an early sale.
The mining giant BHP Limited (ASX:BHP) continued its downward spiral as the stock struggles to find support, tumbling a further 4 per cent for the week. BHP is down nearly 40% fior the year. The company announced earlier in the week that the Brazilian government will likely sue the mining giant as well as Vale over the Samarco incident.
Metcash Limited’s (ASX:MTS) share price is up 22.4 per cent after it announced higher than expected sales revenue. The group also launched its ‘working smarter program’ to increase its productivity and simplify its business operations.
Slater and Gordon (ASX:SGH) rebounded 64 per cent after the company reaffirmed its FY16 guidance and announced that the law passed in UK will not affect its operations to a great extent given the diversity of cases it handles.
Myer Holdings Limited (ASX:MYR) gained 10.3 per cent as the company announced a stronger than expected earnings report and was optimistic about its performance in the year ahead. Retail sales in general grew by 0.5 per cent in October and investor sentiment towards this sector looks upbeat as the holiday season starts.
RBA kept the cash rate unchanged; Chinese manufacturing data disappoints
China released disappointing manufacturing data on Monday which was slightly below market expectations and provides further hurdles for commodity producers. US Nonfarm employment rose by 217,000 jobs, which was higher than the market expectation of 190,000. US Non-Manufacturing PMI rose by 55.9 per cent, lower than 59.1 per cent during the previous month.
The RBA announced its decision to keep the cash rate unchanged at record low 2 per cent for seventh month in a row. Australia’s GDP increased by 0.9 per cent compared to 0.3 per cent in the previous quarter. Australian Bureau of Statistics announced that inflation-adjusted retail sales grew by 0.5 per cent for the month.
The week ahead: Chinese trade balance, U.S. retail sales
China will announce its trade balance and CPI data on Tuesday and Wednesday respectively. The UK will announce its interest rate decision for December, which is expected to remain at 0.50 per cent. The US government will release retail sales and producer price data during the week.
Author: Simon Herrmann
Dec 07, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.