What mattered last week and a preview of the week ahead 27th May

What mattered last week:

• The S&P500 closed the week around 1% lower as the escalation in U.S.- China trade tensions weighed.
• Soft business conditions/sentiment surveys in both Germany (IFO) and the U.S. (PMI’s) highlighting the link between rising trade tensions and business.
• The disappointing economic data in the U.S. combined with a flight to safety, ensured yields on the 10-year Treasury fell to 2.31%. The 3mth/10yr yield curve is again on the verge of inversion, which often provides an early warning of recession in the U.S.
• The weaker U.S. economic data coming at precisely the wrong time for the U.S. dollar, which was on the verge of confirming its recent breakout.
• Locally, the ASX 200 finished the week 2% higher, after the surprise election result and RBA Governor Philip Lowe confirming an interest rate cut is imminent.
• The AUDUSD closed the week near .6930, buoyed by the surprise election result, weaker U.S. economic data and underpinned by the Australian interest rate market which is now fully priced for two interest rate cuts by September.

For the week ahead, the key events are:

Australia: HIA new home sales (Wednesday), building permits and private capex Q1 (Thursday), private sector credit (Friday).

Private capex Q1 (Thu): The Q1 capex survey will include a Q1actual as well as the 2nd estimate for FY19/20.  Estimate 1 for 2019-20 came in around $92bn, and the market is looking for a rise to $96.5bn for estimate 2. Because of the ongoing lift in mining the risk appears to be for a higher second estimate, a fraction over $100bn.

New Zealand: RBNZ financial stability report (Wednesday), building permits (Thursday), ANZ consumer confidence (Friday).

China: Industrial profits (Monday), NBS manufacturing and non-manufacturing PMI’s (Friday).

Japan: Leading economic index (Monday), unemployment, industrial production, consumer confidence, housing starts and retail sales (Friday).

U.S.: House price index, S&P Case-Shiller home price (Tuesday), consumer confidence (Wednesday), corporate profits Q1 (Thursday), pending home sales, personal income, personal spending and core PCE inflation (Friday).

• Consumer Confidence (Wednesday): The market is looking for a rise in consumer confidence from 129.2 to 130. However, the headwinds from rising trade tensions and a fall in stocks during the survey period suggest the risks are for a softer number.

Fed Speakers on the wires this week include Clarida and Williams.

Canada: Bank of Canada interest rate meeting (Thursday), PPI and GDP Q1 (Friday).

• BoC interest rate meeting (Thursday): The BoC is widely expected to keep the overnight rate on hod at 1.75%. At its April meeting, the BoC shifted from a tightening bias to a neutral bias. Despite stronger domestic data, geopolitical uncertainties are likely to see a neutral bias remain in place.

Euro Area: German consumer confidence, EA business confidence, economic sentiment (Tuesday), German unemployment (Wednesday), German retail sales and inflation (Friday).

UK: GFK consumer confidence (Friday).