Originally published by IG Markets
With much of the big data out of the way by the close of last week, and a quadruple expiry of equity options and futures markets, equities have been left uninspired, but continue to look supported.
This week, following a 25 basis point rate rise, a greater insight into how the Federal Open Markets Committee (FOMC) views the Trump administration policy could be gained, with 9 members of the FOMC speaking at events throughout the US.
One suspects we are seeing a growing belief that the Trump inspired rally may be coming to an end, with little detail emerging around policy statements. It seems this is a key reason why the S&P 500 is looking so directionless and struggling to move over the key 2400 level. Bank of America’s strategists have taken a more bullish stance suggesting the S&P 500 will reach 2500 points by year's end and I would not rule this out either. Considering the benchmark index has already exceeded every analysts’ estimation for 2017 by the end of February, 2500 points may just be another milestone in this animal spirits driven market. Add in the expectation for earnings per share (EPS) growth between 13% and 19% for 2017, and growing dividend yield, the markets may fulfil this very strong projection. One area of focus has been the G20 meeting over the weekend, of which the Australian Treasurer Scott Morrison attended. It really seems as though the broader economic community is also becoming comfortable about the synchronized future of global growth. The expectation is also that inflation and GDP growth will remain at or above the key 2% level for 2017 and 2018. Some of the commentary from the G20 statement centred around growing greater ties with the African nations and to provide funding to build infrastructure. This would be of great interest to the Euro region in the aftermath of the United Kingdom’s decision to leave the Euro. The EUR/USD rallied into 1.07 to close higher for the week with many believing the euro parity with the US dollar is now in the distant past.
A parallel with this outcome is the emerging markets ETF (EEM) moving 3.9% higher along with a stronger AUD/USD on the back of a commodities market recovery into the end of last week. This now leaves the door wide open for a buoyant 2017. Gold has been the best recipient of the inflation and growth view staging a 2.5% rally to finish on the highs for the week at $1229.35.
The Australian market is expected to open slightly lower this morning with the SPI futures down 13 points. The ADR’s (American Depository Receipt) from BHP Billiton Ltd (AX:BHP),Fortescue Metals Group Ltd (AX:FMG) and Commonwealth Bank Of Australia. (AX:CBA) have remained relatively steady with the BHP ADR closing at $24.77 down 7 cents from Friday’s close of $24.84. CBA is down a little at $84.60 from the last close of $84.77. Supportive of the diggers is the iron ore futures contract moving back to the $92 a tonne level, along with the oil complex also closing higher for the week.
Brent oil is moving back towards the $52 level, which is a clear sign the market is getting comfortable with the supply demand outcome from the Organization of the Petroleum Exporting Countries (OPEC) cuts to production. RBA minutes will be released tomorrow. Commentary around the real-estate mortgage markets will be scrutinised and how the central bank is viewing the divergence of property stress from around the country will also be discussed.