Local market (ASX:XAO) weakens, but posts winning week, Star surges on tax ruling, Boral the highlight

Winners were few and far between on the share market (ASX:XJO on Friday, with the benchmark finishing 0.2 per cent lower, with only the retail and healthcare sectors posting positive returns, up 0.8 and 0.3 per cent. Casino owner Star Entertainment (ASX:SGR) was the standout, with shares finishing 18 per cent higher after the company confirmed it has seen a reprieve on a proposed 60 per cent tax rate to be applied by the NSW government on poker machines. It was a similar story for Boral (ASX:BLD) with new management able to pass on higher costs to customers, while demand for construction materials remained strong; shares were 4.6 per cent higher on Friday and topped the market across the week finishing 14.3 per cent higher. In other company news, smaller retailer Nick Scali (ASX:NCK) gained 13.3 per cent after reporting a 15 per cent increase in sales and double digit increase in profit. Across the week the retail sector managed a 2 per cent gain, with communications up 1 per cent, while the tech sector was hit by more earnings weakness, falling 1.6 per cent, driven by a 12 per cent selloff in Block (ASX:SQ2).

US winning streak ends on producer inflation risk, UBS jumps on loan, Chipotle sales resilient

The rotation in US markets continued on Friday, with the Dow Jones outperforming, posting a 0.3 per cent gain. This compared favourably to the S&P500 and Nasdaq which fell 0.1 and 0.7 per cent as investors digest weaker than expect earnings results from the technology sector. The weakness was also driven by signs that inflation facing businesses may be accelerating again, with producer prices increase 0.3 per cent in July, a result which comes after a further slowing of consumer inflation. In company news, UBS (NYSE:UBS) shares gained close to 6 per cent after the investment bank agreed to cancel the loan afforded by the Swisse Government that supported its purchase of Credit Suisse earlier this year. The news suggests there are fewer skeletons in the closet than expected. Chipotle Mexican Grill (NYSE:CMG) finished broadly flat as the retail stalwart posted weaker than expected second quarter sales and warned of increasing input costs as a potential hit to margins. Across the week, the Dow Jones added 0.6, with both the S&P500 and Nasdaq falling 0.3 and 1.9 per cent.

RBA flags property concerns, AUD weakness continues, property valuations continue to fall

In his final appearance to Parliament, Reserve Bank governor Philip Lowe highlighted the limited impact that the ‘mortgage cliff’ is having, referring to the rolling off of lower rate fixed loans. Wage growth and an easing of inflation meant that consumption hadn’t been hit as hard as expected. He once again put pressure on state governments, flagging rental growth in excess of 10 per cent as a major issue, something being driven by a shortage of supply of housing, as opposed to higher interest rates. The AUD continues to weaken, exposing those who sought to hedge offshore positions too soon, with a fourth straight week of losses placing more pressure on imports. The growing differential in rates to the US is a key driver, as is the slowing Chinese economy. Charter Hall’s childcare trust delivered a 5.9 per cent fall in operating earnings, driven by higher interest costs, with valuations also coming under pressure as a result.

Drew Meredith

Drew is editor of The Inside Network's publications and a principal adviser at Wattle Partners.