The Australian market was modestly higher last week as investors digested another threat by North Korea as well as the likelihood that Donald Trump gets tax reform through Congress. In markets, the ASX 200 index traded in a tight range this week with no meaningful economic data to help push the index above 5,700 points. The best performing sectors were utilities, energy and health care. The worst performing sectors were telecommunications, information technology and consumer discretionary. In company news, the banks were mostly lower after the big four announced that they would be removing their ATM fees in a win for the consumer. Major east coast gas exporters agreed on Wednesday to a two-year supply deal to ensure no shortfall of gas in the domestic market, after talks with the federal government. Myer Holdings was one of the best performers on the ASX 200 index, bouncing off close to all-time lows on market talk of a possible takeover by Solomon Lew’s Premier Investments. Beach Energy was another top performer this week after buying Origin Energy’s Lattice Energy oil and gas exploration business for $1.59 billion. For Origin, the deal means a cut in gearing, while for Beach it offers growth and scale as well as possible EPS and value accretion.

In global markets, Wall Street was higher as President Donald Trump and Congressional Republicans unveiled a plan to overhaul the U.S. tax code to reduce tax rates for businesses and individuals. The proposal continued to fuel some buying appetite in equities even though there were reports that North Korea planned to test a hydrogen bomb in the Pacific. In response, Trump tweeted that North Korea “won’t be around much longer”. North Korea reacted by calling the tweet a “declaration of war” to further escalate the war of words and geopolitical tension between the two nations.

European markets were also higher with the Euro currency weakening after Angela Merkel won Germany’s election and retained her position as Chancellor. The process of forming a coalition government will be difficult given the decision by the Social Democrats (20% of the vote) to discontinue their ‘grand coalition’ with Merkel’s Christian Democrats (33% of the vote). Surprisingly, right-wing party Alternative for Germany won 13% of the vote and now has a better platform to expand its support base.

Asian markets were mostly lower in the wake of another threat by North Korea. China has in response ordered North Korean companies operating within China to close up shop within 120 days. The Australian dollar was lower against most major global currencies this week, reflecting weaker commodity prices. The currency fell below US79c on U.S. dollar strength in response to optimism over U.S. tax reform. The currency pair will however likely exhibit some caution over whether Trump will be able to deliver.

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