The week in finance: Donald Trump takes charge, while inflation is the focus in Australia
Posted
Economics as a driver of market sentiment has become somewhat passé; politics is the new black — or red, if it is bad news — for the big investors.
This week, and for many more to come, the focus will be on what the Trump administration is doing rather than saying or tweeting.
Wall Street took Mr Trump's policy-light inauguration speech in its stride, closing higher on Friday in a generally down week; a move which should provide a positive start on the ASX with futures trading pointing to 0.5 per cent lift.
Markets on Friday's close:
- ASX SPI 200 futures +0.5pc at 5,628
- AUD: 75.51 US cents, 70.52 euro cents, 61.01 British pence, 86.45 Japanese yen, $NZ1.05
- US: Dow Jones +0.5pc at 19,827 S&P500 +0.3pc at 2,271 NASDAQ +0.2pc at 5,063
- Europe: FTSE -0.1pc at 7,198 DAX +0.3pc at 11,630 Eurostoxx50 +0.3pc at 3,399
- Commodities: Brent oil -2.5pc at $US55.49/barrel, Gold +0.4pc at $US1,209/ounce, Iron ore -0.7pc at $US81.41/tonne
The key market moving thread that can be pulled from Mr Trump's speech was a slide in the US dollar.
It wasn't so much that the President had been saying the dollar was too high, but the dollar noticeably started heading south once the "Making America Great Again"/ "America First" vibe became overtly protectionist.
The greenback fell 0.3 per cent over the day against a basket of currencies, and was down 1.3 per cent over the week.
The Mexican Peso jumped 1.5 per cent, while the Australian dollar was largely unmoved.
An upheaval in US trade policy appears to be on the top of the Trump administration's to-do list, with the TPP likely to be scuttled to the bottom of the Pacific pretty quickly.
The most immediate move though, is likely to be declaring China a currency manipulator, perhaps as early as this week.
Putting to one side the fact that accusation is a bit out of date, and China has been trying to prop up its sinking currency, what will happen?
Probably a flurry of "Trade War!" headlines, but in practical terms nothing much else in the short term, apart from another round of tedious negotiations between the US and China that will still be going on this time next year.
Gold and oil rise
Gold could be one beneficiary of the political uncertainty.
It picked up 0.4 per cent on Friday, and 1 per cent over the week.
However, before the gold bugs get too excited, it could be pointed out gold has a long way to climb back from its post US-election nosedive.
In effect gold has been trading pretty much sideways lately, particularly in EFTs, and rising US interest rates and a stronger Greenback are likely to be on-going headwinds.
Oil kicked higher on hopes the Saudi/Russian sponsored deal to cut production will hold, at least in the short term.
Prices rose around 2 per cent following Saudi energy minister Khalid al-Falih's comments that 1.5 million of the 1.8 million barrel per day cut had cut so far been delivered, two weeks into the deal coming into effect.
Iron ore slipped a tad at the end of the week, but still clung on to its gains above $US80 per tonne.
Trading on key Chinese exchanges should be fairly light this week ahead of the Lunar New Year holiday break.
Inflation to edge up
The Reserve Bank board may well be breathing a sigh of relief with the release of the fourth quarter consumer price inflation data on Thursday with both headline and core readings expected to edge up.
A combination of more expensive fruit and vegetables — from a rain soaked growing season — higher petrol prices and airfares, as well as increased tobacco taxes, could see headline inflation rise 0.9 per cent over the quarter or 1.8 per cent year-on-year.
The core measures, preferred by the RBA because they strip out volatile items, are tipped to rise around 0.5 per cent over the quarter, or an average of around 1.6 per cent for the year.
That would still be well below the RBA's 2-to-3 per cent target band, but in this case the "trend is the friend" for the RBA, as the result would be tracking slightly higher than its forecasts.
The RBA seems happy enough to climb back into its inflation comfort zone by 2018, so it would take a shocker — a very low number — to ruffle current monetary policy.
On the other hand, NAB economist Tapas Strickland said a higher than expected inflation result would consolidate current market pricing which has the RBA on hold with a 44 per cent chance of a rate hike in the year ahead.
A much stronger than expected inflation number would probably fuel another rise in the Australian dollar, which also would not amuse the RBA.
Trade prices are also out this week (Friday) with the strong rally in iron ore and coal prices in the past quarter, combined with a slide in import prices, likely to cause a healthy surge in Australia's terms of trade.
BHP Billiton, one of the biggest beneficiaries of the commodities rebound, trots out its fourth quarter production report on Wednesday.
With iron ore and coal motoring along nicely, investor focus will probably centre on its oil and gas operations.
US growth to slow
US fourth quarter GDP is the key global release for the week.
The consensus forecast is for the annualised rate to come in at 2.1 per cent on Friday, down from the 3.5 per cent growth the September quarter produced.
Despite the slowdown, it is still reasonable growth and unlikely to sway the Fed from its path to push interest rates up to something approaching "normal" over the next couple of years.
US corporate reporting season rolls on with some big names dropping quarterly results, including Alphabet (aka Google), Dow, McDonalds and eBay.
Earnings forecasts have been positive, up 6 per cent for the December quarter and up another 14 per cent for the March quarter.
The UK also produces fourth quarter GDP numbers, and like the US, 2.1 per cent growth is the popular tip.
Australia
| Monday 23/1/17 | Syrah Resources Northern Star Resources | Q4 production report Q4 production report |
|---|---|---|
| Tuesday 24/1/17 | Oil Search Orocobre Sandfire Resources Resmed 1/2 year results | Q4 production report Q4 production report Q4 production report First quarter was disappointing, investors nervous |
| Wednesday 25/1/17 | Inflation BHP update Alumina update Independence Group Evolution Mining Senex Energy | Likely to edge up, but no great worry Q4 production report Q4 production report Q4 production report Q4 production report Q4 production report |
| Thursday 26/1/17 | Australia day | Markets closed |
| Friday 27/1/17 | Producer price index Import and export prices | Q4: Lacklustre, growing around 0.5pc YoY Q4: Export prices will jump on iron and coal sales |
Overseas
| Monday 23/1/17 | EU: Consumer confidence | Jan: Pessimism still dominates, but mood improving |
|---|---|---|
| Tuesday 24/1/17 | US: PMI EU: PMI JP: PMI | Jan: Manufacturing sector expanding Jan: Manufacturing sector expanding Jan: Manufacturing sector expanding |
| Wednesday 25/1/17 | US: House price index JP: Trade balance | Nov: Slowing but up 6pc YoY Dec: Solid surplus but imports and exports falling |
| Thursday 26/1/17 | US: Wholesale inventories US: New home sales CH: Industrial profits UK: GDP | Dec: A measure of business investment. Has picked up after being soft Dec: Up around 600K per month Dec: Should be up Q4: Preliminary reading. Growing around 2pc YoY |
| Friday 27/1/17 | US: GDP JP: Inflation | Q4: Likely to show growth has slowed again Dec: Another month of deflation? Core inflation still shrinking |
Topics: business-economics-and-finance, us-elections, trade, markets, currency, oil-and-gas, industry, gold, australia, united-states, china
