The Westpac Melbourne Institute Index of Consumer Sentiment fell slightly by 0.6 per cent to 102.4 in April, down from a March reading of 103. Sentiment continued to remain optimistic for a fifth consecutive month but remains below the stronger 105-115 levels seen in previous years with Australians more uneasy about the outlook for household finances and employment. US wage growth ticked up slightly with 2.7 per cent growth year on-year in average hourly earnings (consensus: 2.7%) while the unemployment rate remained at 4.1 percent for a sixth consecutive month (consensus: 4%). Non-farm payroll growth shrunk with only 103,000 jobs being added (consensus: 193,000) in contrast to February’s high print of 326,000. Some economists have cited March weather as having a dampening effect with snowstorms in the Northeast restricting hours worked. U.S. headline inflation fell to 2.4% (consensus: 2.5%) in March but core inflation, which excludes energy and food prices, rose by 0.2% to 2.1% over the year. The March meeting Federal Reserve minutes were released with notable comments including the strong expectations for improving economic growth and higher inflation. In addition, as a factor that supported rising yields, we had confirmation for our U.S. interest rate piece in March with it being noted that, “a number of participants indicated that … the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected,” hence the uptick in members voting for a higher 2018 year-end rate.
Equity markets ended last week on a positive note with geopolitical tensions in Syria being downplayed in light of a positive reading on the state of US-China trade war fears. A speech by President Xi Jinping early this week promoting China’s commitment to free trade and willingness to concede to at least some U.S. concerns by opening its financial sector to foreign competition was viewed favourably. Positive remarks by President Trump following said speech and on Friday where he also described his openness to the U.S. re-joining the TransPacific Partnership trade deal contributing to the rally.
Iron ore prices rose following a pick-up in steel demand from China’s construction sector after sinking in recent weeks on concerns of increasing trade tension. Aluminium prices rose following new U.S. sanctions against Russia and their implications for major aluminium producer Rusal which may be unable to sell to Western markets as a result and may even go bankrupt. The reduction of supply this is speculated to cause, has driven demand for the metal higher. Nickel prices saw a knock-on effect given Rusal’s minority ownership of miner and smelter Norilsk Nickel, one of the world’s largest producers. Oil rose on increasing geopolitical tensions in the Middle East with rising expectations of a military response by the U.S. and its allies against Syria over its alleged use of chemical weapons near Damascus. Risk-on was the order of the week for currency markets with the Australian dollar rallying against major currencies while the US resumed its downward trajectory against the Euro.
Bond yields in both Australian and U.S. markets traded up over the week as initial concerns over geopolitical tensions made way for the release of a hawkish set of FOMC minutes and expectations of a resolution between the U.S. and China over trade as highlighted above.