Global Markets Review & Outlook
Risk sentiment returned to global markets last week reflecting a downgrade to the expected damage from US hurricanes and further talk regarding US President Trump’s tax plans. Regarding it as “nothing new”, markets even shrugged off North Korea’s latest missile launch – the second straight over Japan!
For the week, the US S&P 500 pushed on to new record highs, breaking through the 2,500 level. Bond yields and the $US also rose, while gold eased back. Oil prices also spiked higher, as hurricane affected US refineries re-started production, and both OPEC and the International Energy Agency (IEA) suggested global surplus conditions were easing.
In other key news, US consumer price inflation was a little higher than expected in August, though there’s a suspicion early hurricane effects (such as on petrol and hotel prices) may have distorted the result. Either way, traders edged up the risk of a Fed rate hike in December from around 40% to 50%.
The UK Pound also surged last week as post-meeting commentary from the Bank of England was more hawkish than expected in light of a recent lift in inflation due to earlier currency weakness. Markets now attach around a 50% chance to the first post-GFC BOE rate hike taking place in December. That said, the BOE’s messaging has often been erratic, and it’s still far from clear the BOE will stick to its guns given lingering concerns over BREXIT and only muted other signs of wage and price pressure.
China’s monthly “data dump” covering retail sales and industrial indicators was modestly softer than expected, consistent with some slowdown in growth after a robust first half of 2017.
The key global focus next week will be the Fed meeting, which is widely expected to herald the start of gradual balance sheet reduction. Of perhaps more interest will be how the Fed interprets the recent inflation data and any signal it provides with regard to a possible further rate hike in December. Another natural focus will be how the North Korea saga continues to play out.
Australian Market Review & Outlook
Australia’s equity market could not quite manage to enjoy the global cheer, with the S&P/ASX 200 rising only 0.4% for the week. Weaker iron ore prices helped spark a pull back in resource stocks, while the finance sector lifted. Though still at a high level, the $A eased back a little in light of $US strength. Local bond yields spiked along with those in the US.
The muted equity response came despite generally positive economic data last week, with another strong rise in employment during August and the NAB business survey suggesting business conditions remain at a high level (though the more volatile “confidence” index did dip). According to Westpac, even consumer confidence managed to bounce higher in September, though remains at below-average levels.
There is little local data next week, with the main interest being Tuesday’s official June quarter house price report, which is likely to show a further moderation in pricing pressures – especially in Sydney!