Fidelity Insights - Why the Fed's QE is likely to end well?

by Michael Collins, Investment Commentator at Fidelity

September 2013

Stan Druckenmiller, a star US hedge-fund manager, slams the Federal Reserve for “running the most inappropriate monetary policy in history”.¹ But what seems to scare investors more is the prospect that the Fed’s quantitative easing will end soon.

Financial markets wobbled after Fed Chairman Ben Bernanke on May 22 said the Fed could wind down the unorthodox monetary tool, whereby a central bank, having already slashed its cash rate to close to zero, conjures liabilities on its balance sheet to buy financial assets. The aim of the policy is to lower long-term interest rates to encourage consumers to spend and businesses to invest.

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Fidelity Insights - Will China's leaders hold steady on economic reform?

by Michael Collins, Investment Commentator at Fidelity

September 2013

China’s Finance Minister Lou Jiwei enjoys the same privilege with China’s media as Australian politicians do with Hansard – if you misspeak you can adjust the official record.

Lou’s error was to imply in July at a media briefing in Washington that China’s economic growth for 2013 could fall below the government’s target of 7.5%, for it fuelled concerns about the challenges facing China’s economy. “We don't think 6.5% or 7% will be a big problem,” he told reporters, a level that would mark China’s slowest growth since 1990.¹ 

To placate concerns that China’s government might fall short of a growth target for the first time since 1998, the government-run Xinhua News Agency quickly corrected its English-language story containing Lou’s remark to say, “There’s no doubt that China can achieve this year’s growth target”.² 

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EFT Securities: US Jobs Disappoint, Precious Metals Eye FOMC

Key points

• China physical demand continues unabated.
  
• Modest tapering likely to be precious metals supportive.
  
• Palladium price falls despite strongest US auto sales since 2007.

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Australia after the Resource Boom By David Hale of David Hale Global Economics September 2013

KEY CONCLUSIONS

• Australia is in the process of transitioning growth leadership from the mining sector to the other sectors of the economy
• The continued depreciation of a still-expensive Australian dollar will facilitate the transition process
• The expected decline in capital goods imports and increase in natural gas exports should help Australia produce large trade surpluses later this decade
• While the major Australian political parties have similar macroeconomic policy agendas, there are major differences in the parties’ microeconomic agendas
• The Liberal Party plans to repeal the carbon tax and the Mineral Resource Rent Tax when it comes to power
• Australia will assume leadership of the G-20 group at the end of this year
• How the Australian stock market performs in the coming years will depend just as much on how international growth evolves as it does on domestic factors

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Shane Oliver, Head of Investment Strategy & Chief Economist view on Australia’s new Government

Key points

• The policies of the new Government if implemented are likely to lead to smaller government, less regulation and over time improved productivity and economic growth. 
• Expect a mini-budget around November that may contain more aggressive budget savings.
• The historical experience combined with the more business friendly approach of the Coalition suggests a positive share market response over time. 
• The key uncertainty relates to the new Senate.

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UBS Global Perspectives

Overview

• Equities: Given US equity’s overvaluation and the uncertainty over the impact of the QE tapering, we continue to prefer equities that are significantly undervalued and have stronger potential for upside surprise, such as UK, German and Japanese equities.
• Fixed Income: We maintain a modest overweight to high yield. Additionally, in preparation to defend against rising rates, we have begun shorting depressed yield curves (e.g., US) and replacing with exposure to healthier yield curves (e.g., Australia).
• Currency: We continue to find some commodity currencies, such as the Australian, New Zealand and Canadian dollars, to be overvalued. Our largest overweight position remains the US dollar, which has benefited from stronger growth, as well as being a safe haven during recent volatility. From a valuation perspective, the USD also appears very attractive as it is trading at historically low relative levels despite recent strengthening, making it an advantageous way to access US economic strength.

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Franklin Templeton Investments: Global Economic Perspective

Perspectives from the Franklin Templeton Fixed Income Group

• DEALING WITH TALK OF FED TAPERING
• GLOBAL MARKETS: RETURN TO REALITY
• EUROPEAN OUTLOOK

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S & P DOW JONES INDICES: Australian Bond Prices Tumble Post-RBA Rate Decision

Highlights:

• The S&P/ASX Australian Fixed Interest Index dropped 0.37% in August after the RBA rate decision.
• The S&P/ASX Government Bond Index led losses, falling 0.67%.
• Within the S&P/ASX Australian Fixed Interest Index, the longer ends of Australian bonds underperformed the market, with 10-year+ bonds dropping 1.18%.
  
  
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Australian profits, the economy and shares by Shane Oliver, Head of Investment Strategy & Chief Economist

Key points

• June half profit reports were poor consistent with sluggish June quarter GDP growth of 0.6% or 2.6% year on year. 
• On a 12 month horizon however, a reduced cost base, low interest rates and a lower $A point to stronger economic growth and profits.
• The share market has moved up ahead of profits and while gains are likely to slow, they are likely to remain decent on a 12 month view as profits start to improve.

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S&P/ASX 200 Earnings Report September Edition

Key Highlights

• 133 companies in the S&P/ASX 200 have reported annual earnings thus far for FY 2013. 35% have reported earnings better than street expectations, polled by S&P Capital IQ analysts. Collectively, the S&P/ASX 200 has reported a -0.3% EPS surprise. 
• Last year, 40% of all companies in the S&P/ASX200 had beaten earnings street expectations.
• Of those companies who have announced earnings, 31% have shown double digit or better Y/Y growth.
• Companies still remaining to report with the largest expected earnings growth for FY 2013 include Bank of Queensland Ltd. (ASX:BOQ) +871.6%, Aurora Oil & Gas Ltd. (ASX:AUT) +124.9%, and Regis Resources Limited (ASX:RRL) +106.9%.
• Companies still remaining to report with the most upward revisions for FY 2013 in the past month include Oil Search Limited (ASX:OSH) 13 upward revisions, Alacer Gold Corp. (ASX:AQG) 10 upward revisions, and Bank of Queensland Ltd. (ASX:BOQ) 9 upward revisions.
• Companies still remaining to report with the largest FY 2013 EPS% change in the past month include Mineral Deposits Ltd (ASX:MDL) +273.2%, Macquarie Atlas Roads Group (ASX:MQA) +84.4%, and Aquila Resources Limited (ASX:AQA)+80.1%.
• Companies with the greatest potential upside based on S&P Capital IQ consensus target price include Discovery Metals Ltd. (ASX:DOL) +501.6%, Sundance Resources Limited (ASX:SDL) +271.8% and Linc Energy Ltd (ASX:LNC) +122.2%, (*data as of 8/30/13).
• 2 companies are expected to report annual earnings in August including:
• Nufarm Limited (ASX:NUF) with an S&P Capital IQ EPS consensus estimate of, $0.29
• Discovery Metals Ltd. (ASX:DML) with an S&P Capital IQ EPS consensus estimate of, $0.02
• On August 23rd, 2013, Crown Limited (ASX:CWN) reported annual earnings of $0.65, slightly above of the S&P Capital IQ consensus estimate of $0.62. The hotel and gaming operator grew earnings by over 16% versus last year. Better than expected cost control helped drive the beat. Revenues of $2.89 billion came up shy of consensus, but still managed to grow over 3% from a year ago. Crown Perth did particularly well with gaming revenues increasing +8% and non-gaming revenues increasing +18% for the second half of the year. The company noted that new restaurants and refurbishments have increased significant traffic to the property. Management did not provide any guidance for the upcoming fiscal year, but did mention there was softness in consumer sentiment for Melbourne. Following the earnings announcement, shares of the stock soared over 5%, reaching a 52-week high.

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What’s the outlook for Australia’s housing market? MLC Investment Management

In this Investment Insight, Michael Karagianis, Senior Investment Strategist at MLC Investment Management, explains:

•	how a resilient housing market helped Australia through the GFC
•	what has supported house prices here, and whether this can continue
•	what high prices and high household debt mean for the housing market’s outlook, and
•	why diversifying beyond residential property is important for investors. Please click here to read the report

ETF Securities report - Physical Gold Shortage Drives Gold Price Higher

Summary

London Bullion Market Association (LBMA) gold forward offered rates (GOFO) rates have now been negative for over 7 weeks. While GOFO rates have been negative during a few exceptional periods in the past, this is the first time they have been negative for a prolonged period, indicating tightness in the physical market for gold traded on the LBMA. Strong demand from Asia and developing countries' central banks, coupled with reduced supply from gold recycling and diminished mining supply, appear to have substantially tightened the market.

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ETF Securities report - Middle East Tensions Boost Precious Metals

Key points

• Gold and silver rise but platinum and palladium suffer.
  
• Looming US debt ceiling debate adds to seasonal support for gold.
  
• Improving outlook for the PGMs, among the few commodities in deficit.

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