Week in Review
Global equities on balance ended down again last week as, after a few days of hopeful chatter on a US-China trade deal, Trump again let fly on Friday with a threat to impose tariffs on a further $US100 billion of Chinese imports. That caused the S&P 500 to sag 2.2% on Friday and unwind the hope built up in previous days. Technically, the S&P 500 ended the week at what appears a critical level – just above previous lows in the pullback so far around 2580, and also close to trend line support from the early 2016 low. So far at least, the market is down around 10% from its late January peak – meaning we’re still only in mild “correction” territory.
Interestingly, China did not immediately retaliate with a new round of tariff threats over the weekend – but instead urged US companies to complain about its Government’s threat to global trade. Did China just blink? All we can do is watch this space, as it could still weigh in with another tariff threat of its own sometime this week.
Meanwhile, Trump was a little more conciliatory on Sunday, tweeting that he thinks China will relent and agree to reduced trade barriers. My base case view remains that China and the US will ultimately agree to some form of deal to avoid imposition of all these hefty tariffs, in which case the current global market sell-off will be a buying opportunity.
Indeed, in other news, Friday’s US payrolls continued to suggest America is enjoying good growth with low inflation. Although the headline 103k gain in March employment was lower than expected (market +193k), there were chunky upward revisions to employment levels in the previous two months. Average hourly earnings were a touch higher than expected (0.3% vs 0.2%), but the annual rate remained fairly well contained at 2.7%. US wages appear to be grinding up, albeit slowly – which is actually good news for the economy to the extent it helps underpin consumer spending.
Locally, economic news was mixed with a better than expected retail sales report though a slightly greater than expected drop in building approvals. House prices also dipped for the fifth consecutive month in March, led by the Sydney market where the median price is now down 4% from its peak last July. Iron-ore prices also slipped further, which added to the current pullback in the resources sector.
Although attention is likely to remain focused on trade-war fears, this week also marks the start of the US March quarter earnings reporting season. Helped by tax cuts and a weaker $US, earnings should be very solid, which may provide some reassurance that the underlying bull market fundamentals remain in place. Indeed, we’ll also receive updates on US producer and consumer prices, which should also remain relatively benign.
In Australia, we get updates on (reasonably upbeat) business and consumer sentiment on Tuesday and Wednesday respectively. RBA Governor Phil Lowe also speaks on Wednesday and the RBA releases its six-monthly Financial Stability Review report on Friday. I expect little change to the current steady local interest rates outlook.
Have a Great Week!