Global and Australian stock indices made new all-time highs last week. US indices were mixed after a disappointing outlook from AMSL held the technology sector back.
US retail sales and industrial production were relatively weak, while official Chinese domestic data surprised to the upside.
A surprisingly strong Australian labour report led to expectations of the first RBA cut being pushed back to April next year.
Quarterly reporting continues this week, with the latest global flash PMIs being the most significant data update.
Stock indices continued to make gains last week. The MSCI AC World index made a new record high on Monday, with the S&P/ASX300 following with a new record close on Thursday, and the S&P500 finishing at a new high after Friday’s session.
Quarterly earnings reports were generally positive despite a few areas of weakness. AMSL accidentally released earnings a day early. The accompanying outlook sent the share price tumbling more than -15% in US dollar terms on Tuesday, also impacting its customer stocks such as TSMC. ASML recovered some losses after analysts concluded that the statements may have been overly conservative. The share price ended the week down -14.0%, while TSMC ADRs traded +5.2% higher. The Nasdaq Composite index ended the week just under -1% below the July all-time high.
All but one of the thirteen banks in the S&P500 index delivered positive surprises, primarily due to higher net interest income and trading profits. However, loan losses and higher provisions were a drag on earnings, consistent with reports that lower-income households are experiencing increasing financial stress. Warren Buffett also made headlines as Berkshire Hathaway reduced its stake in Bank of America to below 10% after the earnings release.
The market cheered the robust +0.4% rise in headline September retail sales figures. However, the strength owed much to seasonal adjustments and was contradicted by unadjusted National Retail Federation figures, which suggested that sales were down -0.3%. The annual increase of just +1.7% in nominal terms is one of the weakest readings on record outside of a recession. It indicates that real sales growth is likely negative after accounting for inflation.
At the same time, industrial production, which is relatively highly correlated with earnings growth, fell by -0.3% in September. After revisions to prior months, production has fallen by -0.6% year-on-year.
Bond yields showed signs of reaching a short-term peak following the data, also helped by a significant drop in the oil price after Israel reassured that it would not strike Iranian oil facilities. However, the market is no longer fully pricing two additional -0.25% cuts from the Fed by the end of the year.
As widely anticipated, the ECB cut the policy rate from 3.50% to 3.25% on Thursday. The market expects the Governing Council to cut again by at least -0.25% at the next meeting in December.
Bets that the Bank of England would cut twice to 4.5% by Christmas were also increased last week after UK CPI inflation fell more than anticipated from +2.2% yoy in August to just +1.7% yoy.
In contrast, hopes that the RBA might cut this year evaporated after a much stronger-than-anticipated employment report on Thursday. +64.1k new jobs were created last month, according to the ABS. August unemployment was also revised down from 4.2% to 4.1%, with the headline number holding at 4.1% in September despite a new record high participation rate of 67.2%. The strength extended to broader underemployment figures, and the employment-to-population ratio also made a new record high of 64.4% in seasonally adjusted terms. ABS staff continue to perceive the labour market as tight.
Friday’s official Chinese data revealed a surprise increase in industrial production from +4.5% yoy in August to +5.4%. September retail sales (+3.2% yoy) were also on the firmer side, with unemployment dropping from 5.3% to 5.1%. GDP growth slowed by less than feared from +4.7% yoy in Q2 to +4.6% yoy last quarter. Earlier in the week, the trade surplus fell short of expectations as exports slid from +8.7% yoy to just +2.4% yoy, suggesting that global demand remains lacklustre.
Following the robust labour market data and improvement in the Chinese domestic economy, Australian interest rates adjusted to the extent that the first rate cut is not fully priced in until April next year. Consequently, the Australian dollar halted its short-term weakening trend, finishing the week at just above US$ 0.67.
The global earnings season continues this week, and Boeing, Coca-Cola, IBM, and Tesla are scheduled to report quarterly results.
Economic data will be relatively light. The latest flash PMIs will be the only significant data release covering Australia. The Federal Reserve Beige Book will be published, along with the Conference Board leading index, and European IFO surveys. Chinese prime interest rates are expected to be trimmed by -0.2%, while the Bank of Canada is also likely to cut rates by -0.25% to 4.75%.
Significant Upcoming Data:
US Weekly Reporting Calendar:
Tuesday – General Motors (GM), Lockheed Martin (LMT), General Electric (GE)
Wednesday – Baker Hughes (BKR), Texas Instruments (TXN), Enphase Energy (ENPH), AT&T (T), Boeing (BA)
Thursday – IBM (IBM), Lam Research (LRCX), Service Now, Tesla (TSLA), Teradyne (TER), DOW Inc (DOW)
Friday – Resmed (RMD)
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