The Week in Review
- Trump was again the major focus of markets last week. Wall Street meandered in the early part of the week but finished strongly, buoyed by Trump’s statement that “something phenomenal.. in terms of tax” will be announced over the next two to three weeks. The US earnings reporting season also remains encouraging, while the 4-week moving average of weekly jobless claims dropped to its lowest level since 1973! The $US also lifted last week on the tax cut news.
- Locally, the key focus was the upbeat economic outlook of the Reserve Bank of Australia. While the RBA left rates on hold, as expected, its post-meeting Statement said the Bank expected “growth to be around 3% over the next couple of years” – which compares to market consensus closer to 2.5%. This was backed up with the RBA’s Quarterly Statement on Monetary Policy on Friday which has still pencilled in 3% growth in the four quarters to December 2017, after what looks like only 2% growth in 2016. A reduced drag from mining investment and a pick up in exports (especially LNG exports) drives their optimism. Global optimism and hopes for a good interim earnings season supported the market, with the S&P/ASX 200 rising 1.8%. On the data front, price pressures in the retailing sector remained evident, with retail sales volumes rising a healthy 0.9% in the December quarter, yet prices up only 0.3%.
Likely Highlights in the Week Ahead
- Fed chair Janet Yellen fronts Congress over Tuesday and Wednesday and she is likely to re-iterate the Fed’s expectation of several rate hikes this year. Watch out also for further Trump blasts, especially now that he seems to be turning his attention to economic policies, such as tax cuts and reduced financial sector regulation.
- In Australia, we get some key local data, such as the NAB business survey (Wednesday) and employment (Thursday). The NAB measure of business sentiment has been improving of late, and further follow through seems likely in the January report. Employment is expected to carve out another modest gain of around 10k, with the unemployment rate steady at 5.8%. That said, month to month gyrations in surveyed employment is akin to a lottery. Of interest will be whether the unemployment rate ticks up further, as any move to 6% of more in coming months now seems necessary before the RBA would contemplate cutting rates again.
- Global markets are currently enjoying what we might call a “Goldilocks” environment, with an improving growth and earnings outlook while, at least of late, a lack of follow though in terms of higher bond yields and the US dollar. Indeed, Trump threw markets a tax bone last week, and they are likely to salivate over the prospect of a bigger announcement in this area over the next week or so.
- Noteworthy also last week was a rise in the $US, after four weekly declines, which suggests it may be poised to resume its uptrend should Trump start of focus on fiscal stimulus. Bond yields, meanwhile, are still consolidating and yet to resume their uptrend – which will first require a break of US 10-years through 2.6%.
- The local earnings reporting season will heat up this week, with the resource sector performance likely to be the standout in light of last year’s rise in coal and iron-ore prices. Earnings elsewhere are likely to remain patchy, not helped by persistent strength in the $A. Price performance in the resources sector was relatively subdued last week – compared to financials – and maybe this week could be its time to shine again.
- Last but not least, I’ll be giving my Quarterly Economic and Financial Market Outlook Webinar this Thursday (as usual following the RBA’s Quarterly Statement). If you’d like to listen in or at least get a copy of the presentation later, sign up here.
Have a great week!