Week in Review
Last week many of the dark clouds hanging over the global economy appeared to lift somewhat, with signs that new US steel tariffs might not be as widespread as feared, North Korea could be prepared to give up its nuclear ambitions and US wage inflation remained reasonably well contained.
America’s S&P 500 Index rebounded 3.5% in the week, and the NASDAQ-100 touched a new record high. Australia’s S&P/ASX 200 Index is set to start with week on a strong note, with futures prices pointing to a rise of around 1% at the open. Importantly, bond yields only lift a tad, with US 10-year yields ending the week up 3bps to 2.89% – and still below the much fear 3% “line in the sand.” The risk on move was reflected in a decline in the $US and rise in the $A – the latter coming despite a drop in iron ore prices.
While developments with regard to tariffs and North Korea were no doubt important for the market’s medium-term outlook, the better than feared US payrolls report should greatly help ease market concerns with US inflation at least over the short-term. While the strong 313k gain in payrolls was impressive, even better was the modest 0.1% gain in average hourly earnings which – together with revisions – dragged down annual wage growth to 2.6% in February from the 2.9% first reported for January. As I suggested last week, it appears the January spike in wage was a bit of a rogue result, boosted by weather-related disruption to seasonal hiring patterns and a several one-off minimum wage increases in a number of States.
Locally, Q4 GDP growth was fairly mediocre, with a 0.4% gain and 2.4% growth over the year. While temporary export weakness dragged down the result, consumer spending improved – help by new iPhone sales and strong underlying employment growth. While exports should improve, chances are choppy consumer spending will weaken again – and all up it’s still hard to see how the economy can live up to the RBA’s expectation of 3% growth this year. The RBA left rates firmly on hold last week as widely expected, while the Bank of Japan and European Central Bank tried hard to play down expectations of any near-term tightening in policy out of concern for upward pressure on their currencies.
With the major event risk of US payrolls now passed, focus this will be on who US steel tariffs actually affect (Europe, China?) and what their likely retaliation will be. Also of interest will be further developments with regard to North Korea. Data wise, the US consumer price index and retail sales will be a focus, though these seem unlikely to shift the now strong expectation that the Fed will raise interest rates at next week’s policy meeting.
Locally, we get useful updates on business and consumer sentiment, with the NAB Business Survey on Tuesday and Westpac’s consumer survey on Wednesday.
Have Great Week!