INSIGHTS

MARKET SUMMARY: 10 TO 14 JULY

Research Team, 14 July 2017

Markets continue to be mixed across the globe, with volatility certainly being the constant for the investing landscape. In the US, tech stocks have continued their rally, boosting markets higher, although attention this week has largely been focussed again on the Trump Administration and the US Federal Reserve.

In terms of local economic data, there hasn’t been a lot. Early in the week, the electronic cards data was released, showing a small increase in June spending from May. Retail spending remained in-line with the previous month, which was surprising given the British & Irish Lions tour. Hospitality spending increased, clearly benefitting from the tour, with spending for the sector up 2.4%. This offset a rather large decline in fuel prices, which were down 3.2% for the month.

The REINZ statistics for June were released during the week and it has reiterated recent trends which show a growing divergence between Auckland and the rest of the country. Median house prices in Auckland rose 2.5% for the year while the rest of the country saw an 11.4% increase. Three regions set record median highs this month, which were the Bay of Plenty, Manawatu/Whanganui and the Tasman region.

Sales volumes have declined across the country for the year, with Auckland again showing the biggest decline and the median number of days to sell increased markedly. Inventories have increased again while auction numbers have fallen. This is further evidence to support the macro-prudential tools that the Reserve Bank has implemented, like the Loan to value ratio restrictions, are having an impact.

Across the Tasman, further signs of divergence between household sentiment and business sentiment was evident. The NAB Business Survey for business confidence in June showed an increase, with a score of +9, rising from +8 and remaining well above the long-term average. The Westpac Consumer confidence survey showed a small improvement, at 96.6, up from 96.2 last month. A reading below 100 indicates that pessimists outweigh optimists, indicating consumers in Australia remain downbeat which is in stark contrast to the business confidence survey.

Federal Reserve Chair Janet Yellen’s testimony to congress this week gave investors a reason to cheer and took the focus in the US away from the latest scandal to plague the Trump Administration. Her dovish tone reiterated the gradual approach the Fed will take and that interest rates didn’t have far to go to put monetary policy on a neutral footing. The testimony pushed the Dow to a fresh all time high and saw broad based gains across the US.

The upcoming week is a very busy one in terms of important local events. The highlight will be the June quarter CPI figures, which will be of interest given the strength we saw in the March quarter. At that time, inflation rose to an annual rate of 2.2%, above expectations and the highest level since the third quarter of 2011. Big increases in food prices, alcohol/tobacco and fuel prices were a large part of the increase, although some of these might prove transitory.

Globally, the focus in the week ahead will shift to the corporate reporting season. This got underway last week with some of the US financials reporting, and things get very busy during this week and the following one. The March quarter reporting season was the strongest in several years, so investors will watch with interest to see if this momentum has been sustained. At present, markets are expecting the S&P500 in the US to grow overall earnings by 6.5%. Nine sectors are forecast to see positive earnings growth, led by energy, tech and financials, while consumer discretionary and utilities are the only two sectors expected to see small declines