Pitcher Partners' wrap up of issues impacting the markets over the last week.
News in Review
The Federal Reserve ruled unanimously to keep its benchmark policy rate in a range of 0.5% to 0.75%.
US employers added 227,000 jobs in January, the most in four months and above the 163,000 average pace projected by economists for 2017. The unemployment rate ticked up from 4.7% to 4.8% and the under-employment rate (including people working part-time who would prefer to be working full time) increased from 9.2% to 9.4%.
Wages growth softened to 0.1% from a downwardly revised 0.2% in December. Cumulative growth for the 3 months to January was 0.4%.
Europe & the UK
The European Commission’s economic sentiment index edged up to 107.9 in January, which was the best reading since March 2011. Furthermore, the commission's business climate indicator, which points to the phase of the business cycle, was unchanged at 0.77 points, the highest level since June 2011.
The inflation rate in the euro area jumped to 1.8% year on year (YoY) in January from 1.1% YoY in December, which was much stronger than market expectations and is consistent with the ECB’s inflation mandate. A much higher than expected inflation outcome in Europe raises questions about whether the ECB might taper its quantitative easing programs earlier than expected.
As widely expected the Bank of England made no change to its formal policy settings. The Bank also lifted its near-term growth forecasts, with growth of 2.0% now seen in 2017 (previously 1.4%) followed by growth of 1.6% in 2018 and 1.7% in 2019.
A rebound in commodity exports delivered a record trade surplus of $3.51 billion in December; only 12 months ago the deficit blew out to a record $4.3 billion. An even higher surplus may be recorded in the coming months following the RBA’s commodity price index moving higher over January.
China & Japan
The China Caixin manufacturing purchasing managers' index (PMI), a private gauge of China’s factory activity, came in at 51.0 in January, down from December's 47-month record of 51.9. The index is still in its seventh straight month of expansionary territory with a reading of over 50.
The Bank of Japan voted 7-2 in favour of leaving its monetary policy unchanged at its January meeting, a decision that was widely anticipated by the market. The decision came despite an increase from 1.3% to 1.5% in the bank’s real GDP growth forecasts for the next two financial years.
With US wages growth remaining soft it appears that there is still slack in the US labour market and this is supported by the increase in the under-employment rate.
While Trump is promising to put a rocket under the US jobs market, it remains to be seen how successful he is in doing so and it may be that inflation is to be driven as much (or more) by cost-push factors rather than demand-pull factors. Cost push factors would include rising oil prices resulting from supply constraints and price rises stemming from import tariffs/protectionist policies.
This will be particularly important to watch going forward as it will determine whether inflation is in fact a help or hindrance to the economy.
The Week Ahead
US: MBA Mortgage Applications (FEB 03), Consumer Credit (DEC)
Australia: Reserve Bank of Australia Rate Decision (FEB 07)
China: New Yuan Loans CNY (JAN), Trade Balance CNY (JAN)
Europe: ECB President Draghi Speaks to Parliament in Brussels
UK: Total Trade Balance (Pounds) (DEC), Industrial Production (YoY) (DEC)
Wagering giant Tabcorp's first-half financial results have been hit by large costs associated with money laundering investigations into the company, its push into the United Kingdom and its pending merger with Tatts Group.
Shares in Aconex fell 45% after the construction industry software provider announced a profit downgrade due to uncertainty in the US and UK markets.
Markets in Review
S&P ASX 200
SHANGHAI COMPOSITE INDEX
ASX200 Sector Performance for the Week
ASX200 Biggest Movers for the week
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