The Australian market was higher this week, shrugging off another North Korean missile test to which Donald Trump retorted, “Additional major sanctions will be imposed on North Korea today. This situation will be handled!” The financial sector was dragged lower after the federal government announced a royal commission into alleged misconduct by banks and financial services firms. The move by the Coalition government follows persistent political pressure for an inquiry to try and remove uncertainty around the industry. The timeframe is limited to 12 months which suggests that the commission will not be all-encompassing, and rather a box-ticking exercise. Despite the difficulty in quantifying the earnings impact, CBA was ~2.0% lower last week whilst the other three big banks were flat. The best performing sectors in the market were utilities, energy and real estate. The worst performing sectors were materials, telecommunications and financials. In company news, Galaxy Resources soared after the lithium miner signed long-term offtake agreements with multiple Asian-based customers. Integral Diagnostics spiked after rival diagnostic imaging group Capitol Health made a takeover offer for the company. Aristocrat Leisure fell despite the poker machine manufacturer beating forecasts because analysts have questioned the company’s US$990 million acquisition of social gaming company Big Fish Games.
In global markets, Wall Street was mostly higher with the Dow Jones breaking through 24,000 points for the first time on indications that the Republican party’s push for a U.S. tax overhaul may get enough support to pass. Republican Senator John McCain said he would back the tax bill, citing a boost to the economy, even though the bill is “far from perfect”. Markets also reacted positively to strong consumer confidence data which recorded a near 17 year high and Jerome Powell’s testimony before the Senate committee which gave an indication of stability and continuity after Janet Yellen finishes her term as Fed Chair.
European markets were lower on profit taking after stellar gains this year. A stress test by the Bank of England on the UK banking system indicated that banks do not need to strengthen their capital position because they are resilient enough to endure “deep simultaneous recessions in the UK and global economies”.
Asian markets were mostly lower, weighed down by a fall in tech shares on fears that the long boom in micro-chip producers may have peaked.
The Australian dollar was mostly lower against major global currencies this week. The currency fell below US76c and remains pressured by stronger U.S. GDP growth and the likelihood of tighter monetary policy by the U.S. Federal Reserve. The British pound climbed to levels against the Australian dollar not seen since the Brexit referendum in June 2016. The move was the result of improving confidence over the Brexit negotiations with the European Union.