Week in Review
With little major market moving data last week, the focus was (once again) on the antics of US President Trump. His decision to sack his Secretary of State Rex Tillerson and then threaten huge new tariffs against China unnerved Wall Street for a few days last week, and contributed to a 1.2% decline in the S&P 500 Index. Bond yields also eased back and the $US was steady – though the latter was momentarily boosted by new US Presidential Economic Advisor, Larry Kudlow (yes I know..), suggesting he favoured a strong $US.
Data wise, the US economy still appears to be ticking along nicely: February’s US CPI result remained benign, with core prices up only 0.2% and 1.8% over the year, while industrial production was strong. Although US retail sales were weak for the third month in a row, this appears to be partly payback for very strong spending in Q4, which in turn was buoyed by the introduction of the new iPhone and (over) excitement regarding Trump’s tax cuts.
Locally, the key highlight last week was another strong NAB business survey, with the all-important “business conditions index” lifting from +18 to +21 – a record high for the monthly survey which began in the late 1990s. Corporate Australia certainly appears happy, even if consumer confidence and spending remained a little patchy. With the RBA focused on low wage growth, however, steady official interest rates still seem likely for some time despite high corporate optimism. Another notable development last week was the 1.7% drop in the $A, which appears a delayed reaction to the recent drop in iron-ore prices, and the market’s renewed focus on Australia’s evaporating interest rate premium ahead of the US Fed meeting this week.
Apart from whatever antics President Trump may come up with, a key market highlight this week will be the US Fed meeting – with a rate rise seen as a virtual certainty by the market. More interest will likely attach to the Fed’s updated economic projections and, particularly, whether the Fed’s “dot point” projections for the Fed funds rate is still consistent with only three rates hike this year. My call is the Fed’s interest expectation won’t change at this meeting, which could provide markets some relief – pushing down bond yields and the $US, but potentially helping boost stocks.
Locally, although the RBA’s policy minutes are released on Tuesday, the key highlight will be Thursday’s employment report – with another solid employment gain expected. It’s also worth keeping an eye on iron-ore prices, which managed to stabilise last week after taking a tumble in the first two weeks of March.