7 Jun 2019
Investor fears curbed by dovish US Fed
- Local and global stocks rose this week as expectations mounted that the US central bank will loosen policy to assist in countering the impacts of trade wars.
- US tech giants came under pressure on fears the US government would increase scrutiny via antitrust (ie. competition) issues.
- In local stock news, Qantas has received tentative approval from US authorities for a JV with American Airlines on US/A&NZ routes.
- The Aussie dollar pushed higher against the US dollar this week. An odd move given the RBA cut rates. We suspect the rise was a function of the somewhat hawkish RBA statement and downward pressure on the US dollar.
- The oil price fell sharply as concerns regarding global demand rose due to escalating trade war tensions.
- The Reserve Bank of Australia cut the cash rate to a new all-time low of 1.25%. The decision was expected given inflation remains well below the Bank’s target band and labour market data has shown recent signs of weakening. We expect at least one more rate cut this year, but more may be needed given weakening economic data.
- Australia’s economy grew by a very weak 0.4% in the March quarter, and by 1.8% over the last 12 months, with weak household spending and the property construction downturn hurting the economy. The main saving grace was government spending.
- Australian job advertisements posted their biggest monthly fall in more than 9 years in May, with job ads having now fallen in 9 of the past 12 months. Caution ahead of the Federal Election contributed to the poor reading in May.
- US tariffs on China are starting to hit US consumers with consumer prices surging in April by the most in 15 months. The result was a cooling in spending. Tariffs are paid for by US companies and US consumers, not the Chinese government.
- The US Federal Reserve chairman responded to trade war fears and weaker than expected US data by signalling that accommodative policy (rate cuts) might be required. The market now has an 80% probability of 2 rate cuts before the end of the year.
- US private employers hired at the slowest pace in more than 9 years in May. Full employment (no immigration) and rising global trade tensions to blame.
- US President Trump’s surprise threat of tariffs on Mexico fuelled fears that a trade war on multiple fronts could lead to a recession. Whilst a trade war with China hurts the US in the long run (China more in the short run), going at Mexico will hurt US almost immediately.
- The European Commission has said that Italy is in breach of EU deficit fiscal rules due to its growing debt and that it justified a disciplinary procedure, rumoured at a fine of almost $5bn. Interestingly, Germany has been breaching surplus fiscal rules for years.
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