Global Markets Review & Outlook
- Last week global markets were again fairly subdued, though the Dow Jones did touch a record high helped by ongoing solid US earnings reports, particularly from Apple.
- US economic data remained market supportive, indicating reasonable growth and low inflation. While US payrolls surprised on the upside, annual wages growth remained low and steady. America’s core consumer price deflator also remained subdued. All up, the data remains consistent with the Fed still announcing the start of balance sheet normalisation at its next meeting in September.
- As for recent market concerns over coordinated global central bank tightening, its noteworthy that the Bank of India cut interest rates last week, and the Bank of England cooled its rhetoric with regard to the chances of near-term policy tightening – citing lingering Brexit fears. The Pound dropped accordingly.
- The coming week will be fairly light on the data front, with the main highlight being the US CPI on Friday. That means markets are likely to remain focused on the ongoing US reporting season (which remains positive), any further antics from US President Trump, and any signals from Fed officials over the monetary outlook.
Australian Market Review & Outlook
- Closer to home, the main relevant market movement was a further strong lift in iron ore prices. Iron-ore prices have now bounced to around $US 73/tonne after touching a recent low of $US53 in early June, to be still below the recent peak of $US83 in February. One fundamental driver has been China’s continued pledge to cut steel over capacity (which increases demand for higher quality imported Australian product), though more speculative forces could also be at play, such as a recent reduction in trading fees in China’s iron ore futures market.
- The Reserve Bank, meanwhile, left rates on hold as expected last week and trimmed its near-term growth forecasts in its quarterly update. While the RBA also edged up its headline inflation forecasts, this was not reflective of stronger domestic demand conditions – but rather a hefty lift in electricity prices, which in part reflects the gas price surge due to the LNG export boom! The RBA also expressed some concern that a high $A could depress growth and inflation going forward, which helped the $A ease back below US80c.
- Local data was generally good. Retail sales were again solid in June, capping off what seems a strong quarter for consumer spending after March quarter weakness. Monthly home building approvals also rebounded more than expected in June – and while they are clearly past their peak, they remain at a relatively high level and suggest home building is not about to collapse in a heap anytime soon.
- In what will be disconcerting to APRA and the RBA, moreover, growth in Sydney and Melbourne house prices (according to Core-Logic data) also remained strong for a second successive month in July – after seeming to have cooled a bit earlier this year. It appears this momentary softness – together with self-defeating new first-home buyer incentives – may have lured a few frustrated late-cycle buyers back into the market!
- The local earnings seasons steps up a gear this week, though the challenge is that the good news with regard to strong mining sector profits (owing to last year’s iron–ore price surge) appears largely priced – while non-mining results are likely to be patchy reflecting subdued growth, a high $A and intense competition. In terms of economic data, the key highlight will be an update on (currently high) business sentiment in the National Australian Bank monthly business survey on Tuesday.
Have a great week!