Mixed signals with respect to progress in US-China trade talks saw global equities and bond yields ease back last week. Otherwise there was relatively little to focus on, apart from the fact the Markit US service and manufacturing indices were a bit better than expected on Friday. As noted last week, this suggests a tentative bottoming in the two-year long global growth slowdown even before the US and China formally ink a deal.
It will be again another data light week globally with focus likely to remain on the trade talks. US durable goods orders – a measure of business investment – will attract some interest on Wednesday, though the market anticipates a continuation of the recent soft trend for now. A bit like Australia’s boxing day, Friday is also the “black Friday” post-Thanksgiving day for US retail sales bargains.
A highlight last week locally was the fact the RBA minutes revealed it was closer to a rate cut this month than the market anticipated. It’s just as well the RBA did not cut, therefore, as it might have “scared the horses” even further. The monthly skilled vacancy index also continued to slide, adding weight to the view that the long rock solid labour market is starting to weaken.
We’ll get GDP building blocks this week with the release of Q3 construction and business investment reports on Wednesday and Thursday respectively. With housing construction turning down and business sentiment at below-average levels, both reports are likely to be subdued – setting us up for another likely soft GDP report next week.
RBA Governor Lowe will give a speech this Wednesday entitled “Unconventional Monetary Policy – some lessons from overseas“. It’s likely to rule out using negative short-term interest rates in Australia, but leave open the possibility of government bond purchases and even direct lending to banks as policy options next year.