Global markets
The effective ‘melt-up’ in US stocks continued last week, with the S&P 500 adding another 0.7%. Although earnings misses by Netflix Inc (NASDAQ:NFLX) and Tesla Inc (NASDAQ:TSLA) briefly weighed on markets, the overriding narrative remains that of growing hopes of a soft landing given resilient economic growth, easing inflation, and hints the Fed could be nearing the end of its rate hike cycle.
Indeed, although US retail sales for June were below expectations, this was offset by an upward revision to the May numbers. Weekly US jobless claims also continue to hold at very low levels.
The key highlight this week will be the Fed meeting, with another rate hike widely expected. Markets are hoping this could be the last move, though it’s likely Fed chair Powell will try hard to retain a tightening bias.
As noted last week, while soft landing hopes have so far favoured growth/technology/quality exposures, there is some evidence of a broadening in the equity recovery to more value-orientated exposures in recent weeks – such as the US S&P 500 equal-weight index.
Australian market
It’s a case in Australia at present that “good news is bad news” – as stubbornly strong economic data, such as last week’s employment report, only heightens fears the RBA will raise interest rates further. Investors are also not relishing the prospect of the upcoming earnings reporting season, with widespread fears of downgrades given the prospect of an eventual slowing in economic growth by next year.
That said, the minutes of the July RBA meeting released last week hint at the Bank becoming a little more worried about the downside risks to growth given the aggressive tightening to date and policy lags. Of course, much now depends on this Wednesday’s Q2 quarterly CPI result – an outcome higher or even in line with market expectations could see the Bank raise rates again next month (even though markets see this as a less than 50% prospect).
The lower-than-expected May monthly CPI result, however, holds out the tantalising prospect that annual headline and/or trimmed mean inflation could drop below 6% – which would seemingly be good enough for the RBA to leave rates on hold for at least a month or two longer.