Global Markets Review & Outlook
It was another bullish week for global markets as generally strong economic data and an absence of new shocks from North Korea boosted investor sentiment. Allowing for the distortions caused by recent hurricanes, US payrolls and ISM industry reports last week all suggested America’s economy remained firm – and September quarter GDP growth is shaping up to be reasonably robust.
As a result, US stocks touched new record highs last week, while US 10-year bond yields and the $US displayed more evidence that their 2017 downtrends are over. In commodity markets, oil dropped back as new doubts emerged over the willingness of OPEC and Russia to extend production cuts – especially given signs it’s only encouraging US producers to take market share! Iron ore prices bounced after large declines in recent weeks, while gold eased back due to the firmer $US and general “risk-on” sentiment globally.
Heading into the new week, a key focus will (again) be North Korea, given media reports on Friday suggesting the rogue state is planning a new missile test. Adding to the angst, Trump – at least publicly – appears to have given up on diplomacy and darkly warned it was the “calm before the storm.” If America does strike, investors (and civilians in the line of fire) can only hope it will be quick and decisive!
Apart from North Korea, another focus this week could be Friday’s US CPI inflation report – especially if there’s any sign (albeit unlikely) of a sharp jump in price pressures. Either way, the Fed still appears on target to raise rates again in December – despite the usual public debate among voting Fed members over how fast they should move. Barring North Korean shocks, or signs of higher US inflation, the global backdrop for stocks remains positive, given an improving global economy and corporate earnings – and optimism over US tax cuts and financial deregulation.
Australian Market Review & Outlook
Sadly, but surely, the Australian market under performed globally again last week, with the S&P/ASX 200 eking out a 0.5% gain. As expected, the RBA policy meeting came and went with the Bank resolutely on hold. Data wise, Core-Logic revealed a further cooling in Sydney house prices in September, while home building approvals – though holding up a little better than expected – still affirmed housing won’t be a source of growth next year.
But the big shock last week was the 0.6% slump in retail sales during August – and downward revisions suggesting sales declined 0.2% in July also. In one fell swoop, the soft underbelly of the Australian economy – consumer spending – has been exposed. With income growth weak, east coast property prices cooling, and electricity prices surging, households appear to be tightening the purse strings. If this continues, the RBA’s hopes of 3% growth anytime soon will be further dashed and this would only underline my expectation that the RBA won’t touch rates again next year.
We’ll learn more on the state of both business and consumer sentiment when the NAB business survey and Westpac consumer survey are released on Tuesday and Wednesday of this week respectively. Surveyed business conditions have remained remarkably upbeat so far this year, though consumers have decidedly been a lot more downbeat.
One bright spot for the economy last week, at least, was that the combination of a firmer $US and weak local economic data saw the $A drop further. It’s still too high for comfort, but appears to be moving in the right direction.
Have a great week!