Week in Review
Global stocks were largely flat last week, with the main “new news” being concerns over progress in US-China trade talks – following President Trump’s revelation that the two leaders won’t meet again in person ahead of the March 2 “deadline” for a deal to be done or new tariffs would be imposed. The US earnings season continued to progress well enough, though there’s increasing focus on a weakening earnings outlook for 2019. Elsewhere, Germany reported another month of weak industrial production, adding to the pall over the European economic outlook.
In Australia, the major event was the shift to a neutral policy bias from the RBA, following global growth concerns and a run of weaker local economic data (such as building approvals and business confidence). For the record, I also shifted my call from the RBA being on hold “for the foreseeable future” to an expectation of two rates cuts by early 2020 – with the first potentially as early as August.
Market wise, bond yields continued to edge lower, with both US and Australian 10-year bond yields breaking below previous lows in early January. Local stocks were relatively strong, with banks benefiting from relief that the Hayne Royal Commission recommendations were not as bad as feared – while mining stocks are benefiting from strength in iron-ore prices (sadly due to the Brazilian dam tragedy) . Indeed, the S&P/ASX 200 last week pushed through previous end-week highs of 5,900. The $US remained firm. Indeed, using an (albeit simple) 30-week moving average trend indicator, the $US is the only financial price trending up among the 7 key prices tracked in the table above.
With markets now focused on signs of economic slowing, global data highlights this week are the US retail sales and CPI reports, with Chinese trade data on Thursday also of note. With key US officials visiting China this week, progress on trade talks will also remain in focus. At worst, however, I expect trade talks will be eventually extended if they bog down – rather than abandoned all together and higher tariffs imposed.
Locally, tomorrow’s monthly NAB index of business conditions will be of interest particularly given its large slump in December – will there be a dead cat bounce? I suspect there might be such disappointment given that the index has been trending down for some time and the outlook for housing and consumer spending is darkening. If surveyed conditions remain weak, expect a few more economists to join me in the “rate cut camp” and for the $A to potentially break below US70c. A weaker $A, potential rate cuts and solid iron-ore prices are positive factors for local share market, even though local earnings and the global outlook remain subdued.
Have a Great Week!