Week in Review
Trade jitters were the major concern affecting global markets last week, which contributed to lower global equities, bond yields and the $US. Fears that Trump was about to impose new restrictions on Chinese investment in tech companies jolted sentiment, though the Administration backpedalled a day later and agreed to adopt a less country-specific piece of legislation doing the rounds of Congress. Trump’s insistence that countries should not accept Iranian oil also added to upward pressure on oil prices, though Trump is now trying to get Saudi Arabia to lift production and keep petrol prices down. Brent Crude tested its recent highs around $US78.50, which in turn helped the global energy producer ETF, FUEL rise 3.5% last week.
In a data light week, the Australian market again held up a little better than its global counterparts, with the S&P/ASX 200 down only 0.5%. Local data was mixed with a solid gain in quarterly job vacancies (suggesting the labour market is humming along nicely) though credit growth continued to slow.
Much as he would like it, most attention is likely to remain focused on US President Trump this week, as the first installment of tariffs on Chinese imports (worth are relatively small $34 billion) are due to go into affect on Friday. China has vowed to retaliate if they do, and Trump has promised to retaliate further if they retaliate! As China, Europe and Canada are not taking a backward step, the big question is whether Trump seeks a compromise or escalates the conflict as he’s threatening to do. My core view remains that Trump’s business instincts and sensitivity to Wall Street will ultimately convince him to relent somewhat – but we’ll see! The other major event this week is, of course, US payrolls where another bumper gain of 200k jobs is expected. Given the tight US labour market, a key sensitivity in the US payrolls report will remain average hourly earnings – with the market expecting only a modest lift in annual growth from 2.7% to 2.8%. An annual wage gain of 3% or more would likely be taken negatively by both the bond and equity markets.
Fed minutes this week will also help shed light on the conviction of voting members behind the new set of “dot points” which now suggest two, rather than only one, further rate hike this year. In Australia, retail sales will likely suggest continued generally sluggish spending while home building approvals should continued their volatile descent from past peaks. The RBA also meets, but should again leave rates comfortably on hold.