INSIGHTS

MARKET SUMMARY: 9 TO 13 APRIL

Research Team, 13 April 2018

The roller-coaster ride for investors has continued this week as volatility remains the only constant in the investing landscape. Trade has again dominated headlines for markets, while rising political tensions in the Middle East have certainly garnered plenty of attention. With the global reporting season underway, albeit slowly, investors appear to be happy adopting a cautious stance. Closer to home, there was little to drive markets in terms of economic data, so investors were left to watch the trickle of corporate news flow and take cues from global peers.

At the close of last week, the latest jobs report from the US was released and missed expectations. There were 103,000 jobs added during March, well below the expected 185,000. The unemployment rate remained at 4.1% while there were some revisions for previous months as well. Wage growth has been a key focus for markets as it is an indicator of inflation. Wages grew slightly faster for the month, up 0.3%, however, were in line on an annualised basis, up 2.7%.

It seems that investors are not the only ones in the US that are concerned that inflation may get away. The Federal Reserve minutes showed that this is high on the Agenda for the committee. Some members are imploring others to consider raising rates faster than currently proposed to keep inflation under control. The Fed continues to see strong economic growth this year and expects inflation to pick up along with it. Interest rates are the key tool central banks have to control inflation.

Chinese President Xi Jinping adopted a more conciliatory stance in terms of trade this week, expressing that China will be adopting a more open market approach and specifically reducing tariffs on car imports. Trade has been a point of contention between the US and China for a number of weeks now and the subsequent uncertainty has put significant downward pressure on global markets. Although no timing was given around when the more open Chinese economy might occur, the market took this as a positive step forward and now sees less chance that there will be a full blown trade war.

There was an escalation of threats from the US, UK and France to Syria and its ally Russia this week, following the alleged chemical attack on Douma. US President Donald Trump has promised a forceful response to the attack and has been backed by French President Emmanuel Macron and British Prime Minister Theresa May. Russia has warned against any military action against the rogue nation and has said that any US missiles will be shot down. This event and the war of words that has followed is creating further uncertainty in the market and has put investors on edge. The energy sector has been a beneficiary of the event as it has driven oil prices to a multiyear high.

The Quarterly Survey of Business Opinion was the local highlight this week, however, it showed that New Zealand businesses remained pessimistic in the first quarter of the year. Although there was a rebound from the prior quarter, businesses have not recovered from the post-election slump as uncertainty around new government policies is weighing. The own activity index was positive, and showed that a large number of firms are considering investment spending in the next 12 months. Hiring intentions also firmed for the quarter.

Global reporting season will steal the spotlight over the next couple of weeks after getting off to a slow start this week. Investors will be able to focus on fundamentals to back up current valuations. This reporting season is being touted as one of the best since 2011, with the earnings growth rate for the S&P 500 expected to be 17.3%. The energy sector is expected to see the biggest jump in earnings, while the consumer discretionary sector is expected to see the least improvement, up just 6.7%.