What mattered last week and a preview of the week ahead 20th May

What mattered last week:

  • After a rocky start to last week from rising U.S. - China trade tensions, the S&P500 closed the week well above its lows.
  • Aided by hopes that the Federal Reserve would cut interest rates to support the economy and optimism that trade talks with China were back on track.
  • We have seen this pattern before. When the U.S. equity market is moving higher, the Trump administrations adopts a more hawkish stance towards China on the trade front. After the market falls, it generally leads to more dovish tones towards a trade resolution.
  • Locally, the ASX 200 finished the week almost 1% higher at 6365.3, led higher by resource stocks which were supported by rising iron ore prices.
  • The rally in the ASX 200 was also aided by more talk of interest rate cuts, prompted by economic data last week which including the soft NAB business survey, subdued wages growth and the unemployment rate ticking higher to 5.2%.
  • A combination which ensured the AUDUSD finally cracked support just below .7000c to finish the week near .6850.

For the week ahead, the key events are:

Australia: RBA meeting minutes, RBA Gov Lowe Speech (Tuesday) and construction work done Q1 (Wednesday).

  • RBA minutes, RBA Gov Lowe speech (Tues): Either in the minutes for the May board meeting or during RBA Governor Lowe’s speech an hour later, the RBA is expected to confirm it has an explicit easing bias, ahead of possible rate cuts in the coming months.

New Zealand: Retail sales Q1 (Wednesday), balance of trade (Friday).

China: Nothing of note.

Japan: GDP Q1 (Monday), machinery orders and balance of trade (Wednesday), CPI (Friday).

U.S.: Existing home sales (Wednesday), FOMC minutes and Markit manufacturing PMI (Thursday), new home sales and durable goods (Friday).

  • FOMC Minutes (Thursday morning): At the last FOMC meeting Fed Chair Powell blamed “transitory” factors for low inflation which at the time supported the idea that rates will remain on hold until 2020. The flare up in U.S. – China trade tensions since then lends credibility to the market moving to price in a full rate cut before the end of 2019.

Fed Speakers on the wires this week include Kaplan, Fed Chair Powell, Evans, Rosengren, Bullard, Daly, Bostic and Barkin.

Canada: Retail sales (Wednesday), wholesale sales (Thursday).

Euro Area: EA current account, Germany PPI (Monday), EA consumer confidence (Wednesday), Germany IFO business survey and Markit flash PMI, EA Markit flash PMI (Thursday).

  • EA Markit ‘flash’ PMIs (Thurs): The market will be watching for further signs of stabilisation in the Euro Area. The expectation is for a small rise in the composite PMI from 51.5 to 51.7.

European Parliament elections are held between the 23rd and 26th of May. Keep in mind that headlines are likely to centre on the Eurosceptic parties which are expected to claim about one third of the seats, however the EU parliament is viewed as a toothless tiger.

UK: CPI and PPI (Wednesday) and retail sales (Friday).

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