International markets – week in review
Last week was an important one with US CPI (inflation data) and the US Federal Reserve meeting, and the news was positive - US CPI was better than expected and Producer Prices surprised on the downside. As a result, US shares continued to rally last week., leaving the April/May pullback in the dust.
On the face of it, US inflation appears to be slowly heading in the right direction.
The week ahead (international)
It’s going to be another busy week with US May retail sales on Tuesday (US time). If retail spending has indeed slowed (as many expect it has) markets should react positively to the news (ie the soft landing scenario). Other important announcements this week will be…
> Chinese industrial production and retail spending.
> New Zealand Q1 GDP report.
Looking at global equity trends, the equity rebound and ongoing AI obsession is now clearly favouring growth and quality over value.
In the meantime Japan’s sharemarket is enduring a relative performance correction while Australia and global smaller companies continue to underperform.
European stocks also slumped last week following France’s decision to hold a snap election in the face of far right political gains in EU voting. An interesting, high risk manoeuvre by Emmanuel Macron.
Australian markets
The S&P/ASX 200 fell 1.7% last week, with slowing growth and persistent inflation dampening market appetite. While Australia continues to lag behind the US in it’s fight against inflation, it’s important to note that Australia was late to the party on the interest rate hiking front, so it makes sense that we still have a way to go. Patience.
A strong labour market report, with employment up almost 40k and the unemployment rate edging back down to 4.0% from 4.1%, while good news economically, somewhat delays action on interest rates, with the RBA adopting a ‘wait and see’ approach.
That said, NAB’s report on business conditions and confidence appears to be showing a weakening trend (with the exception of tourism and non-residential construction). Consumer spending and residential construction also appear to be eroding business sentiment.
The week ahead (Australia)…
This week the RBA will meet, and while no change is anticipated on the interest rate front, all eyes will be on the Bank’s language and messaging. With inflation still an issue, its hard to imagine that the Bank will step back from their mild tightening bias for now. We’ll see.
I expect local markets to remain subdued and jumpy until the inflation story finally turns a page.
Rick Maggi.