Global markets were higher on Friday as the US markets advanced to record levels, buoyed by gains in technology stocks.
Over the weekend the Patrick Harker (the boss of the US Fed's Philadelphia bank), said he has "pencilled in" a rate hike in December, and three more next year, despite weak inflation. This continued the hawkish rhetoric from Fed members last week.
For the week ahead, Fed Chair Janet Yellen will be making another speech mid-week. Important monthly US employment figures released at the end of the week will also be closely watched by investors (although the stats may be too skewed by the impact of Hurricanes Harvey and Irma to make solid conclusions). Closer to home, the Reserve Bank of Australia makes an interest rate decision on Tuesday.
Stock in Focus: Rio Tinto (RIO.AX)
The price of iron ore continues to be volatile of late, primarily on concerns around a potential Chinese government clampdown. While the majority of Rio’s revenues are generated from iron ore, the mining giant's share price has held up relatively well.
Supporting the share price is news that Rio, fresh from paying a record interim dividend, will buy back another $2.5 billion of its shares using proceeds from the sale of its Australian coal assets.
Rio is channelling more money back to shareholders after the mining industry staged a dramatic comeback following a 2015 collapse in commodity prices. With the industry still reluctant to spend a lot of money on new mines or deals, dividends and stock buybacks are becoming popular. In August, the company increased its share buyback by $1 billion this year and said it will pay a $2 billion interim dividend. We continue to prefer the larger more efficient and diversified miners such as Rio Tinto in terms of mining stock picks.
We have a HOLD rating on Rio Tinto given we feel it is currently fairly priced, and members can login to read our latest research on Rio Tinto.
Australia & New Zealand Market Movers
The Australian share market made small gains on Friday (ASX 200 index +0.20%) after a choppy session with a respite in falling iron ore prices helping materials and resources stocks recover lost ground. In other news, a class action against Dick Smith has been filed by lawyers representing shareholders who lost millions of dollars from the retailer's demise.
The New Zealand market was in positive territory on Friday (NZX 50 index +0.21%) led by Synlait Milk and Restaurant Brands that each hit record highs while A2 Milk was the worst performer as investors took profits from the stock's meteoric gains. Restaurant Brands, has made gains after figures released last week showed its sales in the first half of the year were up 51% to $386.1m, after the fast-food operator expanded its footprint through Australia and Hawaii.
3 Things Markets Will be Watching this Week
1. The Reserve Bank of Australia makes an interest rate decision on Tuesday.
2. While markets have largely brushed off the geopolitical situation with North Korea, risks certainly remain.
3. Important monthly US employment figures are released at the end of the week.
Have a Great Day,
Team