Global equities got off to a poor start last week thanks to Trump’s decision to impose tariffs on (small fry) Brazil and Argentina, a weaker than expected US manufacturing survey and – most critically of all – reports that Trump was relaxed about not concluding a trade deal with China until next year.
But just as tensions rose, market hopes quickly returned, with new reports suggesting the all important China trade deal was still close. And the week was capped off with a “Goldilocks” US payrolls report revealing stronger than expected employment growth (266k), yet still broadly benign wage growth (annual growth in average hourly earnings eased back to 3.1% from 3.2%). Overall, the S&P 500 finished the week up 0.2%, and a hair’s breadth from the previous week’s record high.
Encouragingly, manufacturing reports in China and Europe were also generally a bit better than expected – again consistent with the view that global growth is finally stabilising after a two-year slowdown.
In other news, oil prices popped higher following Opec’s decision to deepen their production cuts – in a desperate bid to support prices in a world otherwise seemingly well supplied.
There’s few major global data reports this week, with the focus (yet gain) on a possible US-China trade deal. With the December 15 (this Sunday) deadline approaching for the US to impose new tariffs on China, markets will be hoping for a deal beforehand or, in the least, a decision to postpone these planned tariffs increases until sometime next year. The Fed and ECB also meet, but policy looks set to remain firmly on hold. Last but not least, the UK election takes place on Thursday, with polling suggesting a comfortable Conservative victory which should pave the wave for final parliamentary approval of the “soft Brexit” deal recently agreed with the EU.
The Australian week was dominated with the slightly weaker than expected Q3 GDP result (0.4%), reflecting broad based weakness in consumer spending, business investment and housing construction. A flat October monthly retail sales report was equally disappointing, which again suggested that recent tax and interest rate cuts have done little to revive consumer spirits. One day prior to the GDP result, the RBA Board also meet – and left rates on hold (for now) as widely expected and again tried hard in the post-meeting statement to strike an upbeat tone. But the RBA’s optimism is starting to strain market credibility.
Indeed, the generally dour mood, along with early jitters in global markets, saw the S&P/ASX 200 lose 2% though the week. Remarkably, the $A managed to hold up through the week.
There’s little major data locally this week, though the Westpac consumer sentiment index on Wednesday will be of interest. Given the negative news headlines surrounding last week’s GDP result, there is a risk of a drop back in sentiment which would only perpetuate the negative commentary around consumer spending.