Global Markets Review & Outlook
Encouraging economic data allowed risk sentiment to return to global markets last week despite some initial nervousness following North Korea’s latest missile launch. Although North Korea sent a missile over Japanese airspace, talk in the US and Asia (despite President’s Trump’s tweets to the contrary) appeared to remain focused on finding a diplomatic solution.
Geo-political tensions, however, took a back seat to a raft of good data by week’s end. In particular, markets embraced a better than expected upward revision to US June quarter annualised GDP growth from 2.6% to 3%. Although headline August US jobs growth was a little weaker than expected (at 153K), it was still healthy and markets were also pleased that annual wage growth remained low and steady at 2.5%. Adding to the good cheer, annual growth in the core private consumer deflator eased to 1.4% in August (from 1.5%), further frustrating the Fed’s expectation that inflation would bounce back after “temporary” factors had pushed it down earlier this year.
In Europe, although August results for CPI inflation remained low, they were nonetheless slightly higher than market expectations (annual core inflation 1.3%, versus market expectation of 1.2%), which may increase the pressure on ECB to make some announcement regarding bond purchase tapering at its policy meeting this Thursday.
Apart from the ECB meeting, there is a smattering of US economic data to digest this week and a likely renewed focus on America’s debt ceiling/budget problems as politicians return to Washington. Although clearly devastating, one market positive from the tropical storms in Texas is that it may make it easier for Washington to agree on measures to avoid a government shutdown (at least temporarily) so as to avoid harming Federal relief efforts.
Australian Market Review & Outlook
There was also some encouraging Australian economic data last week, though the share market remained focused on the tail-end of what has overall been a relatively uninspiring earnings reporting season.
Housing data was mixed. While building approvals did not fall as much as expected in July – and remains at a high level – actual home building activity in the June quarter dropped for the second quarter in a row. This suggests housing construction has already peaked and will now be a more persistent drag on growth despite the large “pipeline” unfinished high-rise projects that need to be completed. According to Core-Logic data, the Sydney house price boom appears to be exhausting itself, with prices flat in August.
The most encouraging news of the week, however, was a decent upgrade to business investment intentions in the June quarter capital expenditure survey. Although it’s still early days, non-mining investment appears likely to grow by almost 10% this financial year, though overall investment will still fall modestly – dragged down by a further chunky drop in mining investment.
Tuesday’s RBA meeting is likely to be another non-event, with rates on hold and a “steady as she goes” policy statement. More interest will be in the June quarter GDP results on Wednesday. Helped by better consumer spending and business investment, the economy is expected to show a moderate growth uplift (0.7%) following the weak weather-affected March quarter result of 0.3%. Over the year, however, GDP growth will still be sub-2%.
Have a great week!