Last week saw global equities extend their gains, buoyed by Trump’s confirmation that he will meet Chinese President Xi at this weekend’s G-20 gathering after all. Also helping was the Fed’s strong hint at its policy meeting that it stands ready to cut interest rates if trade tensions unduly slow the economy and/or if inflation remained stubbornly low. Against this backdrop, a further easing back in key US service and manufacturing indices last week (to be both barely above 50) hardly caused a market ripple as it only affirmed the view that Fed would soon cut rates.
Indeed, markets are now anticipating a rate cut at the July 30-31 meeting, and I suspect the Fed will be loath to disappoint.
The prospect of Fed rate cuts and a weaker $US has put a rocket under gold prices, which lifted 5%. Oil prices also rose due to new US-Iranian tensions while iron-ore prices continued their impressive run higher due to Brazilian supply disruptions.
There’s little major data this week globally, with the focus likely on the week-end G-20 meeting – and any further fallout from the US-Iran stoush. It’s hard to see a major trade deal emanating from the G-20 meeting, but at most a commitment to at least keep talking.
Rising stocks and falling bond yields remained the key theme in the Australian market also, with RBA Governor Lowe taking every speaking opportunity to suggest unemployment remained too high and further rate cuts were likely. To my mind, this message seems so strong that it’s hard to see why the Bank would wait until August to cut rates again – with a July move still my base case view.
There is little major data locally, so the focus will be on global developments – such as the G-20 and Iran.
Have a Great Week!