17 Jan 2020
Aussie and US equity markets push through new highs
Markets
- Local and global equity markets moved higher this week, with investor sentiment buoyed by the official signing of the US-China trade deal and by a better than expected start to US corporate quarterly earnings.
- Analysts expect profits at the US’s largest 500 companies to drop 0.5% for the 2nd consecutive quarter, largely due to a drag in energy and industrial earnings that have been affected by the trade war.
- In local stock news, fund manager Pendal Group’s share price fell after the company reported funds under management growth of 1% for the December quarter. Net outflows continued, but improved on the previous 2 quarters. Most of the UK outflows should now subside given the positive UK election result and greater certainty regarding Brexit.
Economics
- Australian retail sales in November came in much strong than expected, following a very weak result in October. It was the best monthly result since November 2017, but we don’t yet know how much of it would previously have been spent during December given retailers started their holiday period discounting fairly early this year. Some retailers have already indicated that December sales were poor.
- US jobs growth in December came in slower than expected, but the pace of hiring still remains relatively high. The unemployment rate remained near a 50-year low of 3.5% whilst average hourly earnings rose 0.1%.
- US retail sales increased in-line with expectations in December, with full year sales rising 5.8% which is slightly above the average for the past 30 years. In other US data, a manufacturing index showed its highest reading in 8 months whilst a home builders index fell slightly but remains near its highest reading since 1999.
- Britain’s economy grew at its weakest annual pace in more than 7 years in November as businesses and consumers held back investment and spending leading into the UK elections. UK central bank support may now be required.
- German economic growth slowed sharply in 2019, showing the significant impact the trade war has had on the demand for exports from one of the world’s biggest manufacturing hubs.
- Chinese exports in December rose 9% from a year earlier whilst imports rose almost 18%. Over the full year, exports rose 5% whilst imports rose 1.6%, with China’s total trade with the US dropping more than 10% from a year earlier.
Politics
- The US and China signed their much anticipated phase 1 trade deal this week. However, a report seemed to indicate that existing tariffs not impacted by the trade deal would remain in place until after November’s presidential election which would also give the US time to monitor China’s compliance with the deal.
- The US Treasury Department dropped its designation of China as a currency manipulator as part of easing US-China tensions. A token gesture given their designation was wrong in the first place.
- The Iranians bowed to global pressure and admitted that it had accidentally shot down a Ukrainian passenger jet carrying mostly Iranian and Canadian citizens. Street protests in Iran ensued resulting in the usual Iranian response of using deadly force to quell the protests. The US took the opportunity exacerbate their pain by introducing new sanctions targeting senior Iranian officials and the country’s metals industry.
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