The Week In Review
- In an otherwise lacklustre week, risk markets nonetheless ended positively following a reassuringly firm US payrolls report on Friday. Importantly, while US employment rose a better than expected 211k in April (market 190K), and the unemployment rate dropped to a new low for this expansion of 4.4%, wage growth remained remarkably benign. Annual growth in average hourly earnings eased back to 2.5% (from a recent peak of 2.8% in February). With the Fed shrugging of as “likely transitory” the weak Q1 US GDP result at its policy meeting last week, the market now regards it as virtually certain the Fed will hike rates at its next meeting on June 13-14.
- The firming in Fed rate hike expectations saw US bonds yield rebound last week, but the overall $US Index was held back by a resurgent Euro – as it seemed more and more likely that Macron would win the weekend’s French Presidential election (which he did!). Macron hopes also saw European equities post good gains, while oil prices slumped further on lingering oversupply fears. Gold trades were also hurt by the “risk-on” sentiment.
- Closer to home, the Reserve Bank sounded somewhat more upbeat on local growth prospects in its post-meeting policy statement and Friday’s quarterly review. Despite this, local equities eased back as soft economic reports out of China kept sentiment toward resource stocks under pressure, and ANZ’s less than stellar half-yearly profit result encouraged some profit taking among financials.
Likely Highlights in the Week Ahead
- There is little in the way of major data globally this week, with attention likely to therefore focus on the tail-end of the US earnings reporting season, the after-glow of Macron’s win in France, and the degree to which the myriad of Fed speakers signal a rate hike in June. With competitively challenged retailers a major focus, this week’s US earnings results may not be as market friendly as those from other sectors (especially tech) in recent weeks.
- Locally, the main focus will be Tuesday’s Federal Budget. As with the RBA last week, Budget economic forecasts may well be a bit more upbeat, and note signs of a broadening global recovery. Building approvals, retail sales and the NAB business survey are due out today – and could paint a more sombre (realistic?) picture.
- Global equities continue to hold up relatively well and the outlook remains encouraging. Political risks in Europe are easing, and the US is enjoying good growth and earnings and still contained price and wage pressures. The main risks remain high outright price- to-earnings valuations and the lingering risk of a North Korean shock.
Have a great week!