The Week in Review
- Geo-political tensions were the main theme of last week, with concerns over a possible US-Russia dispute arising out of the Syrian missile strike giving way to heightened tensions over North Korea. US President Trump seems to have adopted a “it’s time to clean this mess up once and for all” approach, and the world is now awaiting to see if he can convince China to convince North Korea to throttle back on its belligerence. Hopefully, should the US feel forced to act on its own, this could be limited to cyber attacks which destroy – or at least persistently hobble – North Korea’s military threat. The ultimate risk, of course, is that North Korea is capable of killing millions of South Koreans quite quickly through a conventional missile strike if it retaliates – in which case we can expect some form of immediate retaliatory military strike and invasion. Hopefully, cooler heads will prevail.
- As would be expected, such threats overshadowed economic events, with “risk-off” running through markets. US stocks weakened and US 10-year bond yields broke below their previous 2.3-2.6% range. Notably, gold rather than the $US was last week’s safe-haven trade. Oil also lifted – helped by a weaker $US and low US inventories – though signs of rising US shale oil production seems destined to cap the upside.
- Closer to home, the key development was the laughable March employment report, which suggested employment surged by 60K last month. If there was any signal through the noise, it was the fact the unemployment rate clung to the 5.9% level it spiked to back in February. A continued slump in iron ore prices also took its toll on resource stocks, while banks and “bond proxy” sectors like listed property benefited from the “risk-off” drop in bond yields. Perhaps oddly, the $A benefited as the $US weakened. To the extent it can be believed, China’s latest “data dump” suggested the economy remained solid in Q1, with GDP, retail sales and industrial production all beating market expectations.
Likely Highlights in the Week Ahead
- There is again little on the data front globally, with focus likely to remain on geopolitical tensions and the Q1 US earnings reporting season. Although so far overshadowed by military fears, the US reporting season appears promising, with near 10% growth S&P 500 earnings expected on the same quarter a year ago.
- Locally, the data drought continues with only real focus being the RBA meeting minutes on Tuesday. We can expect RBA concerns with the housing sector to be aired (yet again). And given the RBA’s more downbeat post-meeting statement, the minutes might also provide a more detailed acknowledgement the economy is not as solid as the RBA expected a few months ago.
- Although US stocks eased back last week, they are still holding up pretty well (2% off their peak) considering the possible serious geopolitical risks now emerging – and the fact foreign policy, rather than tax cuts, is now occupying the mind of US President Trump. The promise of a good earnings season – and knowledge that the Fed would back off on any near-term rate hikes if geopolitical risk intensified – is likely supporting sentiment.
- That said, gold rather than $US appears to be the favoured “port in the storm” these days. As noted last week, investors interested in gaining access to gold themes might consider QAU and/or MNRS.
Have a great week!