The divergence between leading economic indicators and other economic data continued with the latest NAB monthly business survey reporting another record high since it first began in 1997. This stands in contrast to tepid economic and wage growth for the average consumer. US non-farm payrolls gained strongly growing by 313,000 while the unemployment rate remained at 4.1% and wage growth softened a little. The last point is seen by some market observers as an indication that the U.S. is still not at a state of full employment with room for the employment numbers to continue rising before triggering inflation. US inflation data was in line with consensus forecasts but retail sales were weaker than expected weighing on market performance with the S&P 500 declining.
The Trump Administration contributed with the sacking of Secretary of State Rex Tillerson and his replacement by policy hawk and current CIA Director Mike Pompeo. Gary Cohn’s replacement as Economic Adviser was also announced to be CNBC pundit Larry Kudlow who has outspoken views in favour of a stronger US Dollar and is perceived to be potentially more in favour of protectionist measures than his predecessor.
China industrial output grew above analyst expectations rising 7.2% in the year to date compared with the same period last year (consensus: 6.1%). Fixed asset investment likewise grew by 7.9% over the same period (consensus: 7%) surprising expectations. China announced sweeping banking regulatory changes including a merged regulator combining both insurance and banking regulatory functions and new powers for this agency. These come on the heels of a crackdown against overleveraged Chinese firms with the government takeover of Anbang Insurance as well as the sizeable asset sales of embattled conglomerate HNA Group after it flagged a billion-dollar liquidity problem this year.
US market saw a poor week with the market dragged down by ongoing ructions from the Trump Administration with a Cabinet reshuffle occurring following the dismissal of Secretary of State Rex Tillerson and the appointment of new Economic Adviser Larry Kudlow. The Australian share market also performed poorly, following global equity markets lower this week with the index further weighed down by reports of bank misconduct before the Royal Commission
Oil prices fell following concerns that the OPEC deal to cut output might be prematurely ended due to a face-off between regional rivals Iran and Saudi Arabia (both of whom are currently engaged in several proxy wars with each other in the Middle East). Saudi Arabia ideally needs prices higher to boost the takings from a planned listing of the state oil producer Aramco on the public markets. This downward movement tapered later in the week off the back of stronger than expected US demand for fuel.
The Bank of Japan (BOJ) left its monetary stimulus program including yield-curve controls in place with no end date provided. This will continue to be the case while inflation remains below the BOJ’s target of 2% and leaves Japan out of place with other developed economies which are looking at raising interest rates or normalising their policy settings with the ECB for example dropping a pledge to ramp up bond purchases if the economy deteriorates.