Week in Review
It was another positive week for global equities thanks to still reasonably reassuring growth indicators, dovish Fed commentary and ongoing hopes with regard to US-China trade talks. The US S&P 500 Index lifted 0.6%, and broke above its previous key end-week closing high in early November last year (i.e before the December bloodbath). Equities are broadly enjoying an historically strong recovery after an historically strong slump last year!
With markets attentive to any signs of global slowing, it was notable that all-three key G-3 (US, Japan and Europe) global manufacturing surveys for February came in a bit weaker than expected last week, and in the case of Japan and Europe dropped below 50. America’s index was still comfortably above 50. Clearly, China’s slowdown and lingering trade tensions have taken their toll. Service sector indices, however, remained much more upbeat. Meanwhile, minutes from the latest Fed meeting again suggested that balance sheet rundown is likely to end later this year and the Committee is still unsure whether it will need to lift interest rates again.
Given the accumulating signs that trade tensions have helped slow global growth, markets remain ever hopeful that a US-China trade deal can be done soon. The formal March 1 deadline for a deal (before further US tariffs are imposed) is this Friday, though Trump only just confirmed this will be extended to later in the month – with a “Summit” between the two leaders now being planned. Meanwhile, Trump continues to make positive noises about the prospect of a great deal being done. We’ll see!
In Australia, another strong employment report seemed to fly in the face of growing talk of lower local rates (including from yours truly), though this reflects the fact that employment tends to be a lagging indicator. With wage growth in Q4 still quite subdued and housing/consumer indicators downbeat, I’m still comfortable with my call. Talk of lower rates, moreover, is at least providing some added cheer to the share market despite a less than inspiring earnings reporting season.
Although no formal resolution now seems likely this week, markets may well continue to bask in the warm glow of a prospective trade deal following Trump’s encouraging announcement this morning. Otherwise there will be some attention paid to the Q4 US GDP report, while is likely to show a slowing in growth to a more reasonable 2 to 2.5% annualised pace – following a tax-fuelled 3 to 4% blockbuster pace earlier last year.
Locally, key construction and business investment data are released on Wednesday and Thursday respectively. The former will likely show accelerating weakness in housing construction partly offset by a rebound in often volatile commercial and infrastructure activity after their weakness in the September quarter. The business investment report will be scrutinised for any signs of a downgrade to investment spending intentions over the coming year. Further weakness in national house prices is also likely when the Core-Logic February report is released on Friday.
Have a Great Week!