8 Mar 2019
Trade deal uncertainty quells investor optimism
- Local and global stocks mostly finished a little softer for the week as uncertainty over whether the US and China can strike a trade deal weighed on markets.
- Fresh European central bank stimulus was also taken in poorly by markets on concerns over slowing aggregate demand.
- In local stock news, National Australia Bank confirmed the appointment of Phil Chronican as its chairman. The market took the news positively given his extensive local banking experience and unblemished record.
- The Australian dollar continued to fall against the US dollar this week with weak 4th quarter economic growth putting more pressure on the RBA to cut rates.
- The RBA made no change to the cash rate with meeting minutes also very similar to the last.
- Australian data showed the economy grew at 2.3% in 2018, coming in below the RBA’s 2.75% forecast it made only recently. 4th quarter growth was an anaemic 0.2%, with an increase in government consumption helping to keep the economy expanding.
- A key index showed Australian retail trade contracting in February to its lowest level since 2012 as consumer spending dried up. Retail spending rose ever so slightly, coming in below expectations.
- Australian building approval numbers have risen month on month, coming in above expectations. However, the annual drop was more than 28% on the same time last year, led by apartment approvals which are down 51%.
- US manufacturing activity dropped to its lowest level since November 2016.
- The European central bank said it would defer interest rate hikes (ie. lower for much longer) and offered banks a new round of cheap loans. The comments came after the bank revised down its estimates of economic growth to 1.1% this year.
- Eurozone manufacturing activity went into reverse for the 1st time in more than 5 years.
- Eurozone data showed business activity accelerated more than expected last month.
- German retail sales unexpectedly jumped and unemployment remained at record lows. Broader Eurozone retail sales were also higher.
- A private sector survey showed China’s factory activity contracted for a 3rd straight month in February, though at a slower pace, as the positive effects of policy stimulus now seem to be coming through.
- The Chinese government set its lowest economic growth rate in 30 years at 6-6.5% for 2019. Nothing to be overly concerned about given last years’ target was 6.5%. Key is what the government is doing to boost growth to those levels.
- The Chinese government announced a raft of stimulus measures including fresh tax cuts, increase in infrastructure investment and lending to small firms.
- Reports earlier in the week seem to indicate that an agreement was near on US-China trade with a potential visit from the Chinese President to President Trump’s Mar-a-Lago resort later in the month to confirm the deal.
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