Week in Review
It was a “risk-off” week for global markets, with the major tremor stemming from US President Trump’s (yes him again!) request that a list of tariffs be drawn up to impose on around $US50 billion worth of Chinese imports. Although this still remains merely a threat, stocks duly dropped and China responded that it was ready to retaliate in kind. Will a trade war break out? My sense is that Trump is merely again trying to talk tough – to possibly improve his negotiating position in trade talks – but (more likely) simply to appease his rust-belt political base. His steel tariffs, for example, have already been considerably watered down, with exemptions for several major economies like Canada and Mexico – and even Australia! He’s also getting ready to talk to North Korea after once tweeting diplomacy was not worth the effort.
In other news, reports of privacy concerns around the use of Facebook data sent a shudder through the tech sector, with Facebook shares down 13.9% for the week and 18% from their peak. These jitters caused the Nasdaq-100 Index to drop 7.3% – compared with 6% for the traditional S&P 500 Index. With calls for users to desert the social media giant, the next few weeks will duly test just how strong Facebook’s sticky “network effect” really is – I suspect it will prove sufficiently strong. In more market friendly news, the Fed raised US rates as widely expected and, importantly, calmed market fears by not ratcheting up the number of times (revealed via the “dot points” graph) it expected to raise rates this year. At this stage, the Fed is still planning on two further rate rises this year – which I still think is the most likely outcome given inflation should remain benign and Trump is doing his best to unnerve market sentiment.
In Australia, the key highlight was another solid employment report – which as I suggested last week is unlikely to change the RBA’s thinking on rates until such time as labour market strength translates through into stronger wage growth. Notably, the unemployment rate edged up to 5.6% (from 5.5%) – jobs growth is solid, but it is being admirably sourced from strong population growth and rising workforce participation.
There is little in the way of major market moving data in the week ahead, with the highlight being the (again likely benign) US consumer price deflator on Friday. In Australia’s holiday shortened week, the key highlight (if we can call it that) is private sector credit growth on Wednesday. All up, this likely means markets will continue to hang off the words of the US President and fret over the risks of a trade war. If so that would be a shame, as it is distracting market focus from what otherwise are good fundamentals of synchronised global growth and persistent low inflation.
One near-term worry is that America’s S&P 500 has now slumped back to be very near its recent (February 8) correction low of 2,580 points – a drop below this support level this week could create further follow-on selling as stop-losses are hit.
Have a Good Week!