Global Markets Review & Outlook
Another week another Wall Street record. With the North Korean issue again quiet, there were few other negatives to worry markets last week, allowing Wall Street to focus on a (so far) still encouraging earnings reporting season, good economic data, and the tantalising prospect of US tax cuts.
China’s key leadership meeting came and went, with little sign the Party is thinking about loosening its still tight grip on the economy (through debt funded industrial projects) anytime soon. Data on retail sales and industrial production for September were robust, and Q3 GDP rose by 6.8% – in line with expectations and suggesting China’s 2017 growth target of 6.5% will be easily exceeded.
But perhaps the biggest news of the week came on Friday, with the US Senate passing a budget resolution that will effectively allow it to pass tax cuts with only 50 votes – thereby allowing it to withstand a Democrat filibuster. Of course, the devil is in the details – and, as with health care, even the Republicans might fail to agree a package – but hopes are growing they’ll have better success with tax cuts.
Tax hopes along with continued good US economic data has seen US bonds yields and the $US rise along with equities last week – which has hurt gold and the $A in the process. Meanwhile, it’s a particular boon to financial stocks (as via the BetaShares’ BNKS ETF), which benefit from higher rates.
This week’s key events will be America’s ongoing earnings reporting season, with a swag of leading tech companies (such as Alphabet, Microsoft, and Amazon) scheduled to post – likely positive – results. America’s advance Q3 GDP reading will also be released, and it’s expected to show reasonably good annualised growth of 2.5%, despite recent hurricanes.
Also of note is the European Central Bank meeting, at which a tapering of bond purchases in 2018 is (finally!) expected to be officially announced. While the slow march to ECB tightening has mixed implications for the $US, it clearly supports the trend toward higher global bond yields.
Australian Market Review & Outlook
In Australian, meanwhile, the local market has been on a tear with the S&P/ASX 200 Index rising another 1.6% last week – taking the gains since the market’s recent bottom on October 5 to 4.5%.
Also impressive has been the breadth of the gains across most sectors. No doubt helped by some clarity with regard to the Federal Government’s energy policy, the utilities sector has been the best performer of late (up 8% over two weeks), while weaker iron-ore prices have constrained gains in the materials sector to only 2%.
Data wise, the September labour market report affirmed employment demand remains strong, thanks to growth in construction and services. Despite this, minutes from the RBA’s policy meeting earlier this month affirmed the Bank was in no hurry to raise interest rates.
That said, chatter about RBA intentions could intensify this week given that the Q3 CPI report is expected to show annual rates of underlying inflation have finally inched their way back up to 2%. To my mind, the RBA will want to see one or two more quarters of annual inflation around this level before it would contemplate signaling higher rates – and is loath to change its tune now given the still high $A, weak wages, and potentially fragile transition now underway in the Sydney property market.
Have a great week!