The Week in Review
The past week was one of consolidation for global markets following confirmation that the US Senate managed to pass it own version of the tax cut bill. There’s now likely to be a week or so of haggling as both chambers of the US Congress attempt to reconcile their differences and agree on a single bill to present to the President (which he will most obviously sign!). All up, there’s probably a bit more positive news markets can wring from this story in coming weeks before we can say its “fully priced.”
Globally, economic data remained resoundingly positive, capped off with another bumper US payrolls report. While the US economy churned out another 228k jobs in November, average hourly earnings remained remarkably benign (2.5% Yoy).
Australian economic news was mixed, with a softer-than-expected Q3 GDP gain of 0.6%, yet a further upbeat ANZ job ads result and an encouraging bounce in retail sales after several months of abject weakness. In terms of GDP, while business and public investment are strengthening, consumer spending (60% of the economy) was very weak in Q3 – despite strong jobs growth – and remains our key source of economic vulnerability heading into 2018. Emerging signs of weakness in Sydney and Melbourne house prices will not help consumer sentiment much either.
In terms of key market moves, currencies were a feature last week, with the $US firming and the $A sinking. With the ECB last month having finally announced its decision to cut bond purchases in early 2018, the Euro is now on the back foot – and markets are focusing on US tax cuts and the apparent steely resolve of the Fed to keep raising rates despite persistently low inflation. Soggy GDP and a pull back in iron ore prices, meanwhile, hurt the Aussie last week.
The Week Ahead
The key event in global markets this week will be Wednesday’s US Fed meeting. While a further rate hike appears certain, interest will be on whether the Fed sticks with its “dot point” projection of three more rate hikes in 2018 – or in fact nudges this up further due to greater confidence in the tax cut outlook. If it does, bond yields, US financials and the $US could get a boost – though equities overall could go either way. [Note: exposure to US and other global banks is possible through BNKS ETF, while exposure to a further rise in the $US versus the $A is possible through the USD and YANK ETFs (the latter providing more magnified exposure to $US strength.]
This week also sees the start of futures trading in Bitcoin and interest will be on whether this adds to the price surge (as hedged funds pile in with glee) or starts an overdue correction as cooler heads now take the opportunity to short it.
Locally, there’s a smattering of news which is likely to confirm recent trends – namely solid business sentiment and employment growth (with the NAB business survey and the employment report due on Tuesday and Thursday respectively) yet cautious households with the Westpac consumer survey on Wednesday. With the $US newly ascendant, the $A these days appears particularly vulnerable to bad news!
Have Great Week!