Despite managing to sustain early gains of Friday morning, global geopolitical risks proved too much of a headwind for the market, which closed-down 0.1 per cent at 6234. Funnily enough, across the sector map, the ASX didn’t perform too badly, at least on the face of it, with 8 of 11 of the index’s major sectors advancing for the day. However, it was the trade sensitive materials space – courtesy of a broad commodity sell-off – along with the embattled bank stocks that weighed most on the market and caused the ASX’s soft finish to the week.
Wall Street: Wall Street’s fortunes flipped again at the end of last week, with US Shares all falling into line with one another to close trade on Friday. The benchmark S&P 500 finished just shy of 0.5 per cent higher for the session, while the Dow Jones added over 0.5 per cent to recover the week’s losses and end the week flat. The strong reporting season in the US market has been enough to drive the major indices through the worst of the trade-war storm thus far: roughly 85 per cent of the companies that have reported have met or exceeded expectations. As earnings season nears a close, interest will be in how much longer US equities can shake off trade concerns, particularly given the weekend’s escalation from the Chinese.
Trade War: The trade war took a nasty turn over the week, following the nervously awaited announcement of the Chinese response to US President Trump’s tariffs on China. In what seems a sign that Chinese officials are not willing to be bullied or compromise their national interests, the Chinese government announced it would be slapping tariffs on an additional $US60b worth of US imports. Though on the face of it this figure is far below the $US200b proposed by the Trump administration, the $US60b represents an equal proportion of total US imports into China that the $US200b covers of total Chinese imports into the US. So far futures markets haven’t noticeably shifted in response to the escalation in tensions; however, as we saw last week, the reactions to these developments can sometimes be delayed. Watch for activity in commodities today, particularly base metals like copper and aluminium, to portend worse things to come.
US NFP: US Non-Farm Payrolls were released on Friday night, and were perhaps one other reason that the trade war escalation was in part ignored. Although the total number of jobs added to the US economy missed the mark — posting a 157k gain against a 191k forecast — previous month’s figure was revised higher, underemployment fell, and wage growth hit expectations. It was the kind of print that share-markets quite like to see: signs of an increasingly tighter labour market, steady but moderate wage growth, and high hiring activity from the corporate sector. The US Dollar managed to sustain its strength on the back of the news, although bond and rates markets failed to demonstrate any noteworthy move.
Retail Sales: There was significant local data released on Friday: the release of Retail Sales figures for the month of June. As has been repeated ad nauseum, the strength of the Australian consumer has become quite a concern of late. The oft-sighted trilemma of soft wage growth, high private debt and slipping house prices is constraining consumer spending activity and creating somewhat of a riptide for the Australian economy. Friday’s data has come as a minor reprieve for market participants, with the Retail Sales figure exceeding expectations, printing at 0.4 per cent against a 0.3 per cent forecast. The better than tipped forecast by itself won’t shift the needle for the RBA on its view that interest rates will need to remain low for some-time yet to support the domestic economy; but the numbers did appear support investor sentiment, with consumer stocks posting respectable gains on Friday following the news.
Monetary Policy: The week ahead will be a bumper one for Australian Monetary Policy buffs: on Tuesday the RBA meets, on Wednesday a speech will be delivered by RBA Governor Philip Lowe in Sydney, and on Friday the RBA will release its quarterly Monetary Policy Statement. It’s nigh on certain that the RBA will keep rates on hold at its meeting on Tuesday at their historic low of 1.5 per cent; as such, the all-important commentary will be perused for insights into the bank’s mentality. It is difficult to think that much new information will be gleaned from any of these releases, with the RBA’s recent commentary bordering on the monotonous. Perhaps the major point of interest will be whether the bank maintains its remarkably optimistic bent in what must be considered treacherous times ahead for the Australian economy.
Reporting season: Australian reporting season will gear up this week, taking the local stock-market headlines away from Wall Street. Like their North American counterparts, Australian corporates are tipped to post solid numbers for the quarter, with analysts expecting a circa 7 per cent earnings growth figure. Naturally, the devil is in the detail, as investors look for forwarding guidance from business leaders about growth prospects. This will be most relevant (one must assume) in the mining sector, which after 12 months of general price rises, appear vulnerable to trade war woes and the subsequent fears about slowing global growth and falling commodity prices. If sentiment does prove quite bearish amongst the business community, perhaps a reversal in the ASX’s recent strong-form is on the cards.