28 Jul 2017
Rising US equity prices lifts global markets
Markets
- The local equity market pushed higher this week, led by the materials sector, and supported by a rising US equity market.
- US tech heavy NASDAQ index hit new record highs prior to a deluge of tech company earnings reports.
- However, Amazon shares came under selling pressure, dropping more than 4% before recovering losses, after the company reported a 77% drop in quarterly profit. Investors need to remember that the company is not being run for profit right now – revenue growth and market share are key. 2nd quarter revenue came in at AU$47.5bn.
- Strong US company reporting earnings continued this week with close to 75% of those that have reported beating consensus earnings and sales estimates.
- The most commonly quoted measure of equity market volatility, the VIX index, fell to a record low this week. Part complacency and part some sort of equilibrium on economic and market expectations. Conducive environment for stocks to continue edging higher.
- The Aussie dollar broke through the 80c mark against the US dollar this week, helped by rising commodity prices and a weakening US dollar.
Economics
- The RBA has commented that the market has read way too much into their inclusion of a new neutral cash rate (3.5%) into last meeting’s minutes. We whole-heartedly agree. The market remains irrational.
- The US central bank kept interest rates unchanged as expected. September and December meetings are the key for potential rate changes. Expect no change at the September meeting in light of lacklustre inflation, and chances of a December rate rise are low right now.
- US home price growth eased slightly but remained healthy as demand continues to outweigh supply. Sales of US homes fell more than expected in June as a dearth of properties amid strong demand pushed prices to a record high, keeping first-time home buyers on the sidelines.
- US consumer confidence is booming with the July reading the 2nd highest level since the year 2000.
- The International Monetary Fund (IMF) lowered its US economy growth forecasts for 2017 and 2018, blaming less expansionary than expected fiscal policy. IMF forecasts are prone to heavy revisions. This time is no different. Expectations of actual US fiscal policy should’ve always been very low.
Politics
- Wrangling over the health care overhaul continued in the US senate, with a procedural vote just to begin debating the health care bill narrowly passing, with the Vice President having to serve as tiebreaker vote.
- Sense finally prevailed in US politics when it comes to tax reform with Republicans announcing they have shelved the so-called border adjustment tax, which would tax imports to the US from certain countries. All it would’ve done is raise prices in the US and encourage trading partners to increase tariffs on US exports.
- Conflicting reports out of the EU / Britain, with the EU claiming a lack of progress on Brexit thus far, whilst British officials sounded confident that enough progress will be made by October in order to move on to the next stage of talks. Like telling your parents they’re wrong when you’re living under their roof.
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