Global Markets Review & Outlook
- The global highlight last week was an intensification of the war of words between America and North Korea, which saw US stocks pull back from record highs despite ongoing positive economic data and earnings results. Gold, the Japanese Yen and Swiss franc appeared to be the world’s favoured safe havens – and not notably the $US!
- In other news, a strong US “job openings” report underlined the ongoing strength in its labour market, while weaker than expected producer and consumer prices meant Fed hopes that inflation would quickly bounce back toward its 2% target level – which it almost reached in February – remain elusive. Indeed, contrary to Fed hopes, the post-February dip in US inflation is looking less and less “transitory” by the month.
- Either way, the clear strength in the US labour market seems sufficient grounds for the Fed to stick with its plan to announce balance sheet reduction at next month’s policy meeting, though a December rate hike appears increasingly doubtful unless inflation bounces back sometime soon. If the Fed does eventually confirm the bond market’s growing expectation that rates won’t rise again this year, it could provide another sugar hit for equities.
- The coming week will remain fairly light on the economic front, with the main highlight being the US retail sales on Tuesday and minutes from the Fed’s July meeting on Thursday. Instead, markets are likely to remain focused on the geo-political tensions surrounding North Korea. Markets remain unsure whether President Trump’s strong “fire and fury” rhetoric suggests he’s on the verge of military action, or is merely intended to scare China into bringing North Korea into line. One hopeful sign were reports that “back channel” discussions have been taking place between the US and North Korea for some months. Here’s hoping cool heads will prevail!
Australian Market Review & Outlook
- Closer to home, it was another week of positive economic data, with ANZ job ads rising further and the NAB measure of business conditions holding at healthy pre-GFC levels. That said, public comments from RBA Governor Lowe suggested the Bank remains in no hurry to lift rates – given inflation is still below 2% and the recent rebound in $A further complicates the outlook.
- As in the US, local stocks were dragged down by geo-political tensions last week, and also not helped by only patchy results so far from the current earnings reporting season. Iron-ore prices, bond yields and the $A also dropped back.
- Local data highlights this week include the Q2 wage price index on Wednesday and July employment on Thursday. Taken together, these are likely to show wage growth remains remarkably soft despite continued good employment gains. Our challenging local earnings reporting season also continues this week, while Chinese retail sales and industrial production on Monday are likely to show its economy growing at a steady healthy pace.
Have a great week!