Global markets were higher overnight as markets kicked off the final quarter of the year on a positive note. US financials and healthcare stocks led the market after data pointed to underlying strength in the economy.
US factory activity surged to a more than 13-year high in September (the Institute for Supply Management (ISM) said its index of national factory activity surged to a reading of 60.8 last month, the highest reading since May 2004, with a reading above 50 in the ISM index indicating an expansion in manufacturing activity), pointing to underlying strength in the economy even as Hurricanes Harvey and Irma are expected to dent growth in the third quarter. The data reinforces our view that the US economy is in better shape than many believe.
Closer to home, the NZ market was marginally lower yesterday, while the ASX started the new quarter with moves higher as investors are hoping to shake off a disappointing September quarter during which the ASX lost ground even as stocks around the world continued to climb.
Stocks in Focus: Gold Stocks Continue Slide
While the Aussie mining sector supported the ASX market rally yesterday, gold stocks continue to come under selling pressure.
Gold Price: USD/Ounce
Gold slipped to its lowest in nearly seven weeks and experienced its worst month of the year in September, as growing expectations for a Federal Reserve interest rate hike in December dragged on prices.
While gold does appeal to investors as a hedge against uncertainty (which saw it supported when North Korean geopolitical tensions flared), as we have highlighted in the past, we believe the next leg will be lower for gold as US interest rates move higher. Higher US interest rates lift the opportunity cost of holding non-yielding gold bullion, while boosting the US dollar, in which gold is priced – making it more “costly” for investors to hold gold.
We have been negative on the outlook for gold for some time now, and continue to avoid buying gold/gold mining stocks.
Australia & New Zealand Market Movers
The Australian share market rallied on Monday (ASX 200 index +0.84%) as the ASX enjoyed a strong start to the new month, propelled by the twin tailwinds of a strong Friday night lead from Wall Street and weekend data showing continuing resilience in China's important manufacturing sector. Mining stocks led the charge after data released by China's official statistics agency on Saturday showed the country's manufacturing activity grew at the fastest pace since 2012 in September, easing worries of a slowdown.
The New Zealand market was slightly lower on Monday (NZX 50 index -0.02%) with Metro Performance Glass hitting a record low while A2 Milk Co and Synlait Milk extended last week's gains. With a lack of news flow, it appears as if the market is taking a breather after a strong week last week. In the background uncertainty remains with a coalition government yet to be formed.
3 Things Markets Will be Watching this Week
1. The Reserve Bank of Australia makes an interest rate decision on Tuesday.
2. While markets have largely brushed off the geopolitical situation with North Korea, risks certainly remain.
3. Important monthly US employment figures are released at the end of the week.
Have a Great Day,
Team