Equities Holding Their Gains

Originally published by BetaShares

The Week in Review

• While Trump's travel bans seemed to unsettle markets earlier last week, the solid US payrolls report - including the absence of higher US wage inflation - allowed Wall Street to finish on a strong note. January US payrolls rose by 227K (market 180K), with higher labour force participation resulting in the unemployment rate edging up to 4.8% (from 4.7%), while average-hourly-earnings only rose a non-threatening 0.1% (market 0.3%). Also helping was Trump's moves on Friday to begin the process of winding back financial sector regulation, which helped bank stocks especially. As expected, the Fed left rates on hold and issued a relatively balanced statement, reassuring investors that a hike is unlikely at the next meeting in March. The other global highlight was China's surprise decision to modestly hike rates on Friday, which naturally hurt local resource stocks.

• All up, however, last week's positive US data - coupled with Trump's erratic actions - are still helping push global equity markets higher, while the US dollar and US bond yields remain in corrective mode following last year's major moves higher. In turn, a weaker US dollar is helping gold prices. Indeed, also checking the rise in the US dollar are statements from Trump and some of his advisers suggesting Europe and China especially are unfairly keeping their currencies too low. Crude Oil Futures prices rose following signs that OPEC was abiding by its production cut agreement, and following new US sanctions on Iran.

• Locally, last week's economic data was fairly upbeat, with solid credit growth and a lift in the National Australia Bank Ltd (AX:NAB) measure of business confidence. Most telling was a record monthly trade surplus reported for December, helped by higher coal and iron ore prices - which pushed at the Australian dollar. On the downside was a further slip in building approvals, highlighting that the best days of the home building boom are likely behind us.

Likely Highlights in the Week Ahead

• In a data light week in the US market, attention is likely to remain focused on The Donald. His move on Friday to focus on financial market deregulation could add further shine to banking stocks, while his erratic moves in the areas of trade and geo-politics could leave markets overall on edge. The other focus on Wall Street will be corporate earnings results which has been mildly encouraging, rather than super charged, so far.

• In Australia, the focus will be the RBA - with a meeting on Tuesday, a speech by Governor Lowe on Thursday, and the Statement on Monetary Policy (SMP) on Friday. The RBA will keep rates on hold and likely to retain a fairly balanced outlook - given the mixed forces of low inflation and only modest growth, but persistent strength in investor lending and Sydney property prices. Friday's SMP, however, will show a downgrade to the growth outlook, if not the inflation outlook, reflecting the surprise negative Q3 GDP result.

The Wrap

• Global markets are currently enjoying what we might call a "Goldilocks" environment, with an improving growth and earnings outlook, but - as of late at least - a correction in bond yields and the US dollar. The lack of wage inflation in Friday's US payrolls report offers some relief that inflation is not about to escalate anytime soon. As such, there's little compelling need as yet for the market to alter pricing for only two Fed rate hikes this year, with the next move not until June.

• In this environment the focus will likely remain on Trump's scatter-gun array of policy positions and the course of the US earnings reporting season. Until such time as bond yields or the US dollar resume their upward ascent, equities seem able to grind higher.

Have a great week!