Week in Review
It was another positive week for global stocks, as ongoing encouraging talk about progress in US-China trade talks remained the gift that keeps on giving. Last week it was Trump’s announced willingness to extend the March 1 deadline that boosted sentiment. It’s fair to say a positive trade deal now seems increasingly “priced” into the market, and once it’s settled it may well become a classic case of “buy the rumour, sell the fact”.
Washington’s deal to avoid another Government shutdown was also a relief, with Trump finally resorting to the national emergency route – and inevitable court wrangling – to get his Mexican Wall built. Whether or not The Wall is built is of secondary importance for markets, the big relief is that shutdown threats – and potential associated risks to economic growth – no longer seem part of Trump’s bargaining tactics.
Other global news last week was less positive, with a shockingly weak US retail sales result for December – which is either a rogue number or reflects the sensitivity of spending to the Government shutdown late last year and the slump on Wall Street. And while the Q4 earnings reporting season is OK and broadly meeting expectations, there’s increasing focus on the weakening outlook for Q1 earnings (and potentially for 2019 as a whole).
In Europe, Germany narrowly escaped a technical recession with flat growth in Q4 (market +0.1%) after shrinking by 0.2% in Q3. Weaker export sales to China and disruptions to car production – following the introduction of tougher emissions testing standards – have taken their toll. With the Italian economy also ailing and a potentially hard Brexit on the horizon, it’s now looking even less likely that the ECB will begin to lift rates this year.
In Australia, there was mixed news: the NAB Index of business conditions partially recovered in January after the shock slump in December, though housing finance approvals revealed that even owner occupiers (along with investors) are now deserting the market in droves. The current local earnings reporting season is revealing only subdued growth overall, though no worse than already cautious market expectations.
Market wise, among the key markets tracked above, there were no breakouts last week, and the only market trending up (according to the criteria above) remains the $US.
In a data light week globally, the main focus should remain progress in US-China trade talks. The minutes of the latest Fed meeting are also released on Wednesday, with markets looking for any insight into the strength of the Fed’s apparent resolve to be “patient” before lifting rates further. Fears of global slowing will also be tested with key US and European manufacturing surveys on Thursday.
In Australia, we’ll get a likely muted quarterly wage report on Wednesday and a still reasonably upbeat employment report on Thursday. Although I now expect the unemployment rate to eventually head higher due to the deepening housing downturn, it’s premature to expect much movement until later this year.
Have a Great Week!