Week in Review
It was a relatively subdued week on global markets with little in the way of major data or key news events. While hopes of an eventual US-China trade deal continues to underpin sentiment, an element of caution crept into markets last week following Trump’s decision to delay the March 1 deadline and also walk away (at least for now) North Korean peace talks. Comments from US trade negotiator Robert Lighthizer suggesting a deal with China could still take some time also weighted on markets.
Meanwhile, however, US economic data remained generally in a “Goldilocks” zone, with signs of only a modest economic slowdown and benign inflation. Indeed, US GDP grew at a better than expected 2.6% annualised pace in Q4, while annual core consumer price inflation held steady at 1.9% in December. Fed officials continued to express “patience” with regard to the interest rate outlook.
Conditions were less rosy in Australia, with a weaker than expected Q4 building construction report and the Q4 capital expenditure survey suggesting only modest business investment growth is expected both this financial year and next. According to Core-Logic, house prices also continued to slide in February, with weakness broadening beyond Sydney and Melbourne. While auction clearance rates have lifted a little in recent weeks, this could partly reflect more realistic price expectations by vendors. It will be interesting to see if simmering talk of a possible RBA rate cut breathes renewed (but likely premature) confidence into the market.
While markets will remain attentive to any news with regard to US-China trade talks, the key data event will be US February payrolls on Friday. The market is anticipating a more subdued – but still solid – employment gain of around 180k, following January’s blockbuster 304k increase. Even more critical, however, is likely to be growth in average hourly earnings, given fears that the tight US labour market could eventually lead to stronger wage inflation and more Fed tightening. For the record, the market expects annual wage growth to edge up slightly to 3.3% from 3.2%.
In other highlights, China’s ruling party will formally announce its growth target for 2019 at this week’s Annual Congress. Markets anticipate a weaker 6% target following the 6.5% expectation for 2018. As was the case last year, my hot tip is that China’s GDP growth will come in – one way or another – impressively close to the official target!
In Australia, the data highlight will be Q4 GDP on Wednesday. With weak retail spending, housing construction and business investment, the outcome is likely to be soft – with the market expecting a gain of 0.5% after 0.3% in Q3. Business profits and inventories data over the next two days will help firm up growth expectations, with another uncertainty the extent to which non-retail consumer spending (only known once the national accounts are released) displayed feisty strength.
The RBA also meets this week, but no change to the “more balanced” rhetoric is likely at this stage.
Have a Great Week!