The Week In Review
- It was another fairly lacklustre week in global markets, with the S&P 500 easing back 0.4% after flirting with new record highs.
- Having started with a bang, the Q1 US earnings report season is ending with a whimper. Of course, that’s perhaps not surprising given the remaining focus on competitively challenged bricks and mortar retailers – such as Macy’s and Nordstrom which reported downbeat results last week.
- Also weighing on sentiment was US President Trump’s surprise decision to fire his FBI chief, a smaller than expected rise in April US retail sales, and European consolidation after celebrating Macron’s French Presidential election win the previous week.
- Closer to home, the S&P/ASX 200 ended the week flat even though the Federal Budget’s tax slug on the banks weighed on the financial sector. Helping the market was a bounce in resource stocks given further stabilisation (bottoming?) in iron ore prices. Economic news was mixed, with a weakness in retail sales and building approvals countered by a solid further gain in the National Australian bank monthly business conditions index.
Likely Highlights in the Week Ahead
- There is again little in the way of major data globally this week, apart from China’s monthly “data dump” today – which may show further modest slowing in industrial production and retail sales as the recent tightening in credit conditions bite further.
- In Australia, March housing finance today will provide an important update on the degree to which investor lending was pulling back even before APRA launched its latest round of credit tightening measures. We’ll also get another likely reminder of the very weak pace of wage growth when the March quarter wage cost index is released on Wednesday. Given the sheer volatility in monthly employment changes in recent months, the focus of Thursday’s April labour market report is likely to be the relatively more stable unemployment rate – after its lift to 5.9% in recent months.
- Although global equity prices are flirting with record highs, there appears a lack of major new catalysts to drive the market much higher in the near term.
- The US economy slowed down somewhat in the March quarter and early reports for the second quarter are mixed. The good news from the soon to conclude US earnings reporting season is also priced. Meanwhile, Fed speakers in general continue to suggest US official rates will nonetheless rise again next month. Europe has also priced in the Macron French election victory, and new political risks are potentially emerging in Italy (see my upcoming blog this week).
- That said, the good news also is that wage and inflation pressures generally remain dormant, meaning central banks are in no hurry to take away the punch bowl too soon.
Have a great week!