US equities edged further into record territory last week reflecting a raft of reassuring news. Along with other tech stocks in recent weeks, Facebook and Apple comfortably beat earnings expectations. US employment also rebounded strongly from the hurricane induced weakness in September, while reports on US price and wage inflation remained benign. The Fed left rates on hold as widely expected, but gave investors some cheer when it described US economic growth as “solid.” Trump’s choice of Jerome Powell as the new Fed chair was also a relief, given he was considered less hawkish than the other touted candidate John Taylor, and apparently more open to further financial deregulation that the outgoing Janet Yellen.
The one dampener was politics – with uneasiness following the arrest of two Trump campaign officials as the Russia probe deepened. And there was also some disappointment as details of the US tax cut plan finally emerged – namely that any cuts will be phased in over time, and there’s now growing opposition to either its general fairness and/or its attack on certain existing concessions.
Also notable last week was a further gain in oil prices in anticipation of OPEC extending its production cut at its November 30 meeting. The Bank of England also hiked rates, but quickly pledged to not do so again for a long while!
Counter to the raft of good global news, the big highlight locally last week was retail sales weakness for the third successive month. This saw bond yields and the $A drop on reduced fears of an RBA rate hike anytime soon. Adding to the bond supportive news, Core-Logic revealed Sydney’s median house price peeled back 0.5% in October (after a drop of 0.1% the previous month) which together with subdued auction clearance rates provides further evidence that the Sydney boom is over. Iron-ore prices also continued to slide, reflecting China’s moves to cut steel production in a bid to improve air quality.
All this, however, did little to stop local stocks having another good week, with the S&P/ASX 200 closing tantalisingly close to past stubborn resistance of 6,000. Can it break the barrier? While Australia still lacks the earnings support of its global peers, solid global momentum, a weaker $A, and the diminished risk of RBA tightening in 2018 suggests it can.
There are few major economic reports either globally or locally this week. Global markets might instead therefore choose to worry a little more about the Russia probe, emerging opposition to the US tax plan or any new sabre rattling with regard to North Korea that may emerge given US President Trump is touring Asia.
In Australia, the main focus will be the RBA policy meeting and its Statement on Monetary Policy on Tuesday and Friday respectively. In view of recent weak retail sales and emerging softness in Sydney house prices, the Bank is likely to affirm its intent to leave rates on hold for a good while yet.