The big four stock market indexes in the US all closed at new record highs Friday as traders continued with the pre-Thanksgiving optimism about the impact of a Trump presidency on markets and the US economy.
The S&P 500, Dow, Nasdaq and Russell 2000 all put on a little less than 0.4% bring the Trump rally to three consecutive weeks and a little more than 6% from the close the week before the US election. Of course that 6% move in the physical market masks the huge fall we saw move in Asian trade (overnight S&P 500 futures) making the Trump rally all the more remarkable.
And after a period of under performance the positive tone in US stocks, and commodities finally saw buyers re-enter the market and buy stocks on the ASX200 last week pushing the price up through 5500 for the first weekly close above that level since August 26.
Can US stocks stay bid and will the ASX200 hold above 5500? That’s the big question facing traders as we head into a big week which includes more partial indicators of Australian growth, the latest read of US GDP growth for Q3 and of course the big daddy of data in US non-farm payrolls on Friday.
And we have the big OPEC meeting November 30 and then the Italian constitutional referendum next Sunday to worry about. It’s going to be another big week.
Here’s a warning of stocks from Deutsche Bank From the excellent DBWeekender comes a neat summary why there might be more hope than reality in the current US, and global, stock market rally.
Stuart Kirk, Rineesh Bansal, Luke Templeman, and Sahil Mahtani wrote:
After the holiday weekend investors should note that companies’ elevated levels of return on equity have only been supported by rising margins.
Since the financial crisis, the net income margin of the median S&P 500 company has risen one-quarter to 10 per cent, offsetting a similar fall in asset turnover. This looks unsustainable. Wages are nodding up as are borrowing costs.
Over the last year, interest expense as a proportion of operating income has risen from 10 to 12 per cent, the sharpest rise since 2001 outside the crisis. Thus asset turnover now looks key to higher equity prices. Looser fiscal policy would help. So may the pain of higher wages and a strong dollar if companies are pressed to boost productivity.
Australian Calendar – (courtesy NAB Economics, our emphasis)
After this week’s soft Construction data, attention now shifts to Thursday’s Q3 New Private Capital Expenditure (including 2016-17 expectations). We expect it to also hint at downside risk to Q3 GDP. Friday’s October retail sales are expected to grow 0.4%. Other key data includes the HIA New Home Sales, volatile Building Approvals, RBA Credit (Wednesday), then Thursday’s AiG PMI, House prices and RBA Commodity Prices.
Australian Q3 growth could be awful. The prospects for a good print for Q3 GDP took a hit last week with the release of construction work done for the quarter suggesting a big hole in growth before the addition of other sectors of the economy.
The NAB’s economics team said that the big miss in construction also suggests not only a weak starting point for growth but also potential downside to this week’s capital expenditure release for Q3.
“NAB’s Australian GDP model has been calling for GDP to have grown by a modest 0.1% in the September quarter, a forecast that embodies a 0.5% decline in underlying private business investment.
“Q3 Construction points to downside risk for both of these estimates. A 12.9% decline in non-residential building construction in all likelihood will be followed by Thursday’s survey revealing weak business Buildings and Structures spending, pointing to an aggregate decline of 2% for Q3 Capex” the bank said.
And of course besides actual capital expenditure markets will be interested in the 4th forecast for the year ahead which is also released.
- Speaking of spending, October’s retail sales is out Thursday.
The NAB expects “moderate but still positive growth of 0.4%”.
“Retail business conditions in recent months have shown signs of softening that we expect to be reflected in some trend slowing in the Statistician’s measure of sales, 0.4% growth coming after 0.6% in September. We are also aware that the tone of the labour market has been slowing over recent months with signs that underlying wage rate growth has eased, as well as the continued shift toward part-time employment, both acting as some headwind to aggregate household income growth.” the bank said.
International Calendar (also courtesy NAB Market Economics)
Global : A heady mixture of geopolitics and key data awaits. OPEC meets Wednesday to discuss production cuts, with attention then on the weekend’s two European votes, the Italian referendum and the Austrian Presidential election, both events key signposts for incumbent leaderships and those facing re-election in 2017. Key US data is also in store with Wednesday’s PCE deflators, Thursday’s ISM Manufacturing, and Friday’s payrolls. There are Fed speakers aplenty ahead of the December 14 FOMC that’s fully priced for a hike. Fed speakers include influential Fed Governors that should confirm that a hike remains on track. China releases its official PMIs Thursday, the RBNZ and BoE release their Financial Stability Reports and Draghi speaks twice.
US: As well as the top tier releases and Fed speakers, there’s revised Q3 GDP and S&P/CoreLogic House Prices and Consumer Confidence (Tuesday), ADP Employment and Pending Home Sales and the Fed’s Beige Book (Wednesday).
China: Industrial Profits Sunday. Thursday’s official PMIs is the main interest.
Japan: Labour Market, Retail Sales (Monday), and Industrial Production (Wednesday).
Euro: Draghi speaks Monday and Wednesday, OECD Economic Outlook Monday, Confidence Surveys (Tuesday), CPI (Wednesday).
UK: Credit Tuesday, Consumer-Business Confidence Tues/Wed, Mfg PMI (Thursday).
Canada: Current account (Tuesday), Sep/Q3 GDP (Wednesday).
Chart 1: Market priced for a Fed hike.
NZ: There’s still uncertainty over Statistics NZ release dates. The RBNZ’s Financial Stability Report and related Governor Wheeler testimony is on Wednesday. Also there is the ANZ Business Survey, Overseas Trade Indexes, Building Work Done and Credit Aggregates.
And here is the NAB’s excellent diary of all the key data and events in the week ahead.
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