Stocks finish last week on a high, as markets prepare for Fed

The S&P500 clocked a new record-high, after US tech-stocks – most pertinently, Alphabet Inc. – rallied off-the-back-of better than expected earnings.

Stocks follow earnings beat, not strong US GDP

The week ended on another high-note, last week. The S&P 500 clocked a new record-high, after US tech-stocks – most pertinently, Alphabet Inc. – rallied off-the-back-of better than expected earnings. The peace and quiet for stock-market bulls did come under threat, however. US GDP printed better than expected, momentarily casting doubt on how aggressive the US Fed may prove to be in cutting interest rates. But, in the end, despite 2.1% growth for the US economy last quarter, against a 1.8% forecast, the extent of the slowdown in growth from the prior quarter reaffirms the trend in US economic growth – and the need for monetary policy support moving forward.

Equities finish week on a high note

Hence, the S&P 500 ended Friday’s trade up 0.74%, to close at 3025. Betraying from where the strength in the benchmark index happen to be derived: the NASDAQ finished the session-up 1.11%, to register its own, fresh record-high. It capped off a day that was overall solid for global equities. Shrugging of the disappointment from a much less dovish, yet somehow still more pessimistic, than expected ECB the night prior, European stock markets also rallied – admittedly on volumes, generally, below the average. The trend for global equities remains difficult to fight, with investors still taking on risk in this low-yield world.

Interest rates still to be cut across the globe

On low yields: bonds are still pricing-in aggressive monetary easing from just about every central bank in the developed world. Solid US growth and a seemingly equivocal European Central Bank aside, the market remains stuck to the opinion interest rates will need to be cut to prolong an ailing business cycle. Markets are still wedded to the notion that the Fed will need to cut interest rates three, perhaps even four times, in the next 12 months. There’s still multiple cuts or policy easing priced in for the European Central Bank, Bank of Japan and Bank of England, too. While markets are pricing in the next RBA rate cut for October.

Bond markets tell of an economic slowdown

A theme in fixed income markets is safe-haven, long-term bonds with yields below that of the overnight cash rates in the economies that they belong too. US 10 Year Treasuries are well off their lows, but still only delivering a yield of 2.07%. And 10 Year German Bunds and Japanese Government Bonds remain well into negative-yield territory, with the former yielding -0.38%, and the latter yielding -0.16%. The phenomenon became relevant in Australia once again, too, last week: the 10 Year Australian Government Bond right-now yields 1.22% – an all-time-low, and several basis points below the current cash rate of 1.25%.

USD rallies, the AUD underperforms

So, even though stock markets are making new highs, and the global economy remains in a state of nominal growth, the near-ubiquitous belief is that fundamental growth will slow down, in time. The mystery remains when the recessionary tipping point arrives, and whether central banks can defer it successfully. This prevailing view manifested in currency markets last week, with growth tied currencies taking a spill. The Australian Dollar – the growth proxy that it is – is trading in the low 0.69%. And the USD has staged a recovery – supported by commentary on Friday night from White House economic advisor Larry Kudlow that the Trump administration has no intention to devalue the Greenback.

Commodities the bellwether for global growth

Growth sensitive commodities still appear trapped in a downward trend, despite a manifest lack of volatility in commodity markets last week. Oil prices are finding support from geopolitical ructions and certain supply disruptions; however, the overall weak demand outlook is keeping a lid on upside. Gold is well off its highs, but is in an uptrend, supported by the swelling of negative yielding bonds in global markets – this, even in spite of a recovering USD. And separately: iron ore is looking primed to begin its long-awaited trend reversal, as evidence mounts that the global under-production that’s driven its rally this year is coming to an end.

A big-week headlined by the Fed

There’s plenty going on this week to keep markets occupied. Trade-talks re-commence between the US and China to start the week. US Non-Farm Payrolls are released on Friday. The Bank of England and Bank of Japan meet, too. But the big-one is going to be the US Fed on Thursday morning, AEST. An “insurance” cut from the Fed is almost a certainty, with markets pricing in excess of a full-25-basis-point cut. The key story will be how the Fed goes about constructing and communicating a path forward from here. The big-risk to the prevailing bullishness in the market is if the Fed fails to affirm its commitment to the full-blown easing-cycle currently implied in market-pricing.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Take a position on indices

Deal on the world’s major stock indices today.

  • Trade the lowest Wall Street spreads on the market
  • 1-point spread on the FTSE 100 and Germany 40
  • The only provider to offer 24-hour pricing

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.