The bell may have tolled – at least one more Fed hike is likely in 2016 after Friday’s massive beat in US non-farm payrolls which printed 255,000 against pundit guesstimates of 180,000. That the Fed might raise rates is doubly the case given wages growth hit a post-recession high with earnings jumping to a 2.6% year-on-year pace.
While US bond rates rose and the US dollar strengthened, and bonds sold off in anticipation of a possible Fed rate hike, stocks in the US hit all-time highs on Friday night with the S&P 500 finishing at 2182.
That sets up an intriguing week where we might see the almost perfect correlation of markets in 2016 start to break down.
This most hated of stock market rallies might defy everyone. Money managers are as short stocks as they have been for five years – and long on bonds at the same time frame, with a love of cash and safe havens replicated in professional and non-professional asset allocations alike. That makes this one of the most despised rallies I can remember in my 30 years in finance.
It feels like the antithesis of the Nasdaq rally pre-2000, and certainly the antithesis of the pre-GFC stock market highs. It feels like the antithesis of the feeling in stocks just a year ago – when we last saw all-time highs – before the Chinese unexpectedly devalued the Yuan and ignited the fear that’s gripped traders across multi-asset classes for the past 12 months.
For all the concerns that Bill Gross, Jeff Gundlach, and others have, the market keeps going up.
Ultimately that could be this bull’s best friend. FOMO (fear of missing out) might just be the thing that drags all that cash off the sidelines and propels stocks even higher.
Time, corporate earnings, and the global economy will tell.
Australian Calendar – (courtesy NAB Economics, our emphasis)
The highlights will be the NAB Business survey on Tuesday and the RBA governor’s speech on Wednesday. Housing finance approvals and consumer sentiment also due on Wednesday, followed by consumer inflationary expectations on Thursday.
Glenn Stevens speaks.
For many years now the most important speech of the year from RBA governor Stevens has been his address to the Anika Foundation. It’s the one where he sets out a big questions for the economy or offers his candid thoughts on how he thinks the economy is playing out.
Stevens speaks on Wednesday, just a week after the RBA cut rates to a new all-time low. Friday’s Statement on Monetary policy didn’t have an explicit easing bias, but the document dripped with reasons rates in Australia could fall further. So markets will be on tenterhooks to hear what the governor has to say in his last speech before his term ends next month.
International Calendar (also courtesy NAB Market Economics)
US: This week’s highlights include the NFIB Small business optimism report on Tuesday, weekly jobless claims on Thursday, ahead of Retail sales, PPI, and the UoM consumer sentiment survey on Friday.
China: Trade on Monday, CPI/PPI on Tuesday, and monthly Industrial production, Retail sales, and Fixed asset investment on Friday. New Yuan loans and aggregate financing monthly report due any time from Wednesday.
Euro: Sentix investor confidence on Monday, then quiet until Industrial production and revised Q2 GDP on Friday. German industrial production on Monday, current account on Tuesday, and CPI/GDP on Friday.
UK: June industrial production and trade reports on Tuesday, July RICS house price balance on Thursday, and June industrial production on Friday.
Canada: July employment and Ivey PMI tonight, then building permits on Monday, housing starts on Tuesday, new house prices reports on Thursday and Friday.
NZ: Thursday’s RBNZ (expected) rate cut and Statement the main focus; Electronic card transactions, Food prices, Manufacturing PMI, and Retail trade volumes also due.