From Raiz Ceo, George Lucas
US economy adds 196,000 jobs in March
Starting in the US, last week saw the release of the latest employment report that provided further evidence that trend employment growth is slowing there.
Non-farm payrolls increased by 196,000 in March, slightly more than the consensus forecast, but employment growth remained on a downward trend, with the three-month average monthly gain dropping to a 15-month low. The annual growth rate of average hourly earnings fell back to 3.2 per cent, while the unemployment rate was unchanged.
This was not unexpected due to the low unemployment rate indicating that US is pretty much at full employment. Markets would like to see a stabilisation of the average hourly earnings as it reduces the pressure of company margins and therefore profits.
US Fed’s rate-raising days look over
Still in the US and market reaction suggests investors believe the US Federal Reserve ended its tightening cycle in December last year, and that the next move in rates will be down.
That’s reflected in investors substantially revising down their interest rates expectations since the S&P 500 peaked late last year, with fewer than two 25bp rate cuts are currently discounted in the markets.
While the S&P 500 is now back near its peak, economic activity remains subdued both in the US and abroad and this is bound to weigh on earnings of the S&P500 companies, and therefore market direction.
US-China trade talks gain momentum
In Washington, trade talks between the US and China progressed well although details were sparse. Media reports suggested that the two sides have now agreed on specific timelines for implementing a deal, which Trump has hinted may be finalised in the coming weeks.
A deal now appears mostly priced into the markets but the risk of disappointment is rising as US President Donald Trump and China’s Vice Premier Liu He prepare to meet this week. That meeting is apparently to get agreement on key outstanding issues and so risk is now on the downside, especially if a deal is delayed again or does not remove existing tariffs.
Across in the UK, the Brexit saga continues and we will find out mid-week if the EU will agree to delay Brexit beyond 12th April and, if so, for how long.
Australian retail sales soar
At home, the strong 0.8 per cent month-on-month rise in retail sales in February suggests that consumption growth may not have declined further in Q1. However, growth should remain subdued in the rest of 2019 owing to the ongoing housing downturn.
We also got the release of trade data that showed record $4.801 billion trade surplus in February for Australia. The surplus was supported by reduced import values, rather than stronger exports.
Meanwhile, the Reserve Bank of Australia sounded more cautious on Tuesday when it left its policy rate unchanged at 1.50 per cent, including a change in language on the falling house prices in established housing markets.
House prices in Australia’s eight capital cities fell again in March and prices have now dropped by 8.9 per cent since their peak in July 2017, making the current downturn the longest on record.
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