It feels like every week we’re seeing the US S&P500 hit all time highs. And it feels like that, because that’s exactly what’s happening. The main US index the world watches – and the US itself – has now hit nearly 20 all-time-highs year to date.
While there’s growing chatter in the marketplace of ideas America’s tech stock thematic may be faltering, on the whole, we’re still seeing the Megacap 7 consolidate huge power over the other 493 stocks on the market.
But the most recent US earnings season didn’t really spell doom for those other 493 stocks either. In fact, a lot of them are doing pretty well. So it appears that the stellar YTD performance we’ve seen on the S&P500 may have legs to continue running. Clearly, the market thinks so too.
Regardless of your opinions on America – the country solicits very strong opinions, as a rule – if you’ve got shares in the ASX, it’s in your interest that the US continues to perform so strongly.
US euphoria benefits Australia
The contagion benefit strong US markets donate to the Australian market was felt once more this week, particularly on Thursday. While inflation risks remain, US Fed chief Powell sees 3 rate cuts happening this year in the world’s largest economy. We never got that March rate cut, of course.
Regardless: the ASX in turn closed up near record-breaking territory on Thursday but fell short of the 7,847 level hit on March 8.
We also saw a strong ASX run on Tuesday when the RBA kept rates on hold at 4.35% in line with the overwhelming majority of expectations.
But whether or not the RBA introduces its own rate cuts with as much gusto as the US remains to be seen – especially because a lower-than-expected unemployment read released by the ABS on Thursday may have been hampering sentiment on Friday.
In a rare turn of events, while the US went up overnight, the Australian market went down on Friday. We don’t usually see that happen unless there’s a strong domestic catalyst down under, and the labour market data was definitely interpreted by some as a catalyst promoting caution.
We also finished in a sea of red last Friday, too.
Is the market over-reacting?
But the Friday slump could be nothing more than good old irrational over-reaction.
Oxford Economics still see the Australian unemployment rate hitting 4.5% as we head into 2025. Don’t forget late 2025 is when the RBA expects to hit our national 2-3% target band for CPI inflation.
The other big country that influences Australia is, of course, China.
And while China’s troubles are exemplified in a falling iron ore price – less construction in China due to its weaker economy means less demand for Australian iron ore (and iron ore in general) – there are signs that the Red Dragon could perhaps be waking up.
Chinese retail spending data, and industrial production data, both beat expectations when they were released on Monday – assuming the data is reliable, of course, but one can’t be too cynical lest all assumptions fall apart at the seams.
Perhaps iron ore won’t be circling the doldrums for too much longer – of course, we need more Chinese data to tell. Interesting times.
Here’s the headlines that grabbed my eye this week:
Australian Economy
- RBA keeps interest rates on hold at 4.35%
- Australian unemployment falls back to 3.7%
- RBA chief Bullock says “uncertainty” remains the quo
Australian Equities
- South32’s globally significant manganese mine shuttered by storm
- Australian Strategic Materials could win US$600M from the US
- Poseidon Nickel’s entire camp-scale project snatched up by MinRes for a paltry $15M
International Economy
- US Fed keeps interest rates on hold, dashing hopes for March cut
- Chinese industrial production and retail data beats expectations
- Switzerland’s central bank issues surprise -25bps rate cut
- New Zealand has officially entered a recession
- UK core inflation remains high at 4.5%
Commodities
- Copper has pared off some of its recent gains to hit US$4.00/lb
- Iron ore prices see slight late-week uptick but still under pressure
- NYMEX uranium futures slip further to US$85.00/lb
- Brent Crude returns to US$85.xx/bbl late-week after mid-week gains
The Week Ahead
Monday March 25
- Bank of Japan monetary policy meeting minutes
- Australian consumer inflation expectations for March
- US Chicago Fed national activity index
- US new home sales for February
Tuesday March 26
- Australian Westpac consumer confidence index for March
- Forward German consumer confidence data for April
- US durable goods orders MoM data for February
- US consumer confidence data for March
Wednesday March 27
- Australian monthly CPI inflation data for February 2024
- Chinese YoY industrial profits data for February
- Eurozone economic sentiment data for March
Thursday March 28
- Australian MoM retail sales data for February
- UK QoQ GDP growth rate data for Q4 2023
- US QoQ GDP growth rate data for Q4 2023
- US initial jobless claims data for March 2023
Friday March 29
- US MoM PCE inflation data for February
- US MoM personal income data for February
- US MoM personal spending data for February