What mattered last week:
- Over the weekend, the U.S. and China agreed a truce in the trade war promising to halt the imposition of new tariffs for 90 days and to work together to negotiate a lasting agreement.
- U.S. stocks outperformed last week as the S&P500 enjoyed its best week in 7 years closing almost 5% higher while the Nasdaq finished almost 6.5% higher.
- The rally in U.S. stocks was supported by more dovish tones from Federal Reserve members including Federal Reserve Chairman Jerome Powell who stated last week interest rates are just below neutral. This suggests the Federal Reserve may pause its interest rate tightening cycle earlier than expected. Seasonality factors remain supportive for U.S. stocks as well.
- A disappointing week for local investors as the ASX 200 closed almost 1% lower as falls in resource and consumer stocks weighed on the Index.
- Crude oil closed marginally higher ahead of this week’s OPEC meeting (December 6th) in Vienna. A reduction in output is expected to bring some stability back to prices and to curb oversupply concerns.
- Economic data in the U.S. was mixed. Consumer confidence in November remained strong at 135.7, while a significantly stronger Chicago PMI has raised expectations for Mondays ISM release. PCE inflation came in at 1.8%, slightly below consensus expectations, while new home sales were well below expectations.
- Likewise, Australian data was a mixed bag. Q3 Construction Work Done fell -2.8% and this number feeds directly into this week’s Q3 GDP data. Offsetting this was Capex data as the 4th estimate for 2018/19 came in at $114bn, beating the market consensus of $108bn.
- A sharp recovery in the second half of the week saw the AUDUSD close the week back near 12-week highs at .7310.
For the week ahead, the key events are:
Australia: Business inventories Q3, company profits Q3, building permits (Monday), current account, RBA interest rate decision (Tuesday), GDP Q3 (Wednesday), balance of trade, retail sales (Thursday).
- RBA December Board Meeting (Tues): Interest rates will remain on hold at 1.50% for the 26th meeting in a row. The accompanying statement is likely to remind that the labour market remains strong as does infrastructure spending, while noting that the housing market continues to weaken, credit is tightening, and wage growth remains weak.
- GDP Q3 (Wed): With the final partials to drop early this week the preliminary expectations are for a rise of 0.6% which, would leave the year on year growth rate at a respectable +3.3%.
China: Caixin manufacturing PMI (Monday), Caixin composite and services PMI (Wednesday), foreign exchange reserves (Friday).
- Caixin manufacturing PMI (Monday): The expectation is for a number marginally above the 50 level which means the Chinese economy remains in expansion territory.
Japan: Nikkei services PMI (Wednesday), leading economic index (Friday).
U.S.: ISM manufacturing PMI (Monday), ADP employment, ISM non-manufacturing (Thursday), balance of trade, factory orders, non-farm payrolls (Friday).
Fed speakers this week include Fed Chair Powell, Bostic, Kaplan, Quarles and Brainard.
- ISM (Monday): Results from the regional Fed surveys have been mixed in November, however after the robust Chicago PMI print on Friday, the risk appears to be the upside of consensus expectations of 57.8.
- Employment (Fri): Nonfarm payrolls are expected to rise by 200k in November. The unemployment rate is expected to remain steady at 3.7% and wages growth to increase by 0.3% m/m for a 3.1% rise y/y.
Canada: RBC manufacturing PMI (Tuesday), BoC interest rate decision (Thursday), unemployment (Friday).
- BoC (Wed): The BoC are expected to leave the overnight rate unchanged at 1.75% with the sharp fall in oil prices, removing any chance of another rate hike this month.
- Employment (Fri): The market is looking for a +15K gain in employment in November and the unemployment rate is expected to remain at 5.8%.
Euro Area: PPI (Tuesday), ECB President Draghi speech, EA retail sales (Wednesday), German factory orders (Thursday).
UK: Markit/CIPS manufacturing PMI (Monday), BoE Carney speech (Tuesday) Markit/CIPS UK services PMI (Wednesday), Halifax house price index and consumer inflation expectations Q4 (Friday).
- Markit/CIPS PMIs (Mon-Wed): PMIs fell sharply last month, and the expectation is another soft print around 51. Keep in mind the Parliamentary vote for Brexit is now just two weeks away and this continues to dampen sentiment in the U.K.
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