Global markets sold off again on Friday, as the US market losses were led by Technology stocks with US markets experiencing their largest weekly percentage drops since March as concerns over US-China trade tensions and interest rates convulsed Wall Street.
Stock in Focus: S&P 500 Index
For a change, we have decided to focus on the US market today, given its important for driving global investor sentiment which in turn is reflected in the Aussie and Kiwi markets.
The S&P 500, an index of the top 500 US listed companies is now down -10% from its October peak, and trading at support levels which it has previously bounced off of – as illustrated by the chart below.
The question is whether the sell-off will become more severe, and there are a lot of factors at play right now. We remain focused on 2 key risks: 1) a trade war, 2) sharply higher interest rates.
There have been fresh twists in China-US tensions, and it remains to be seen if the two countries are finding common ground in their protracted dispute after presidents Donald Trump and Xi Jinping agreed to work towards better relations. Sharply higher interest rates (driven by the US) are also a key risk for stock markets. On this front. While a December rate hike is largely a done deal, there is a growing view that the US Fed will slow its hikes in 2019 as inflation has lost momentum in recent months. We are watching inflation data closely, with another data print released this week.
Optimists will point to a still solid US economy, relatively low interest rates, a solid company earnings season and low unemployment rates. Pessimists seem to winning at the moment, with a focus on trade tensions, debt levels and how stock markets will handle the reversal of global stimulatory measures implemented by central banks around the world (QE).
We seem to be at a crucial juncture, and while we believe medium-term investors should not panic during volatile times such as these, we think investors who wish to protect against downside risk should start to build cash positions.
Australia & New Zealand Market Movers
The Australian share market was higher on Friday (ASX 200 index +0.42%). Trade war headlines between the US & China continue and the Aussie market has, in turn, suffered some collateral damage given its ties with China. Defensive stocks held firm last week, as investors to the safer property and infrastructure stocks amid the global stock rout. In stock news, Qantas said expects to cut its fuel bill by as much as $40 million a year thanks to a radical overhaul to how it plots its flights across the globe.
The New Zealand market was slightly higher on Friday (NZX 50 index +0.10%) as markets across Asia rallied on speculation the US Federal Reserve will keep interest rates on hold next year, which would maintain the yield attraction of stocks over bonds. Spark New Zealand was up in heavy trading. Z Energy led the market higher, as the transport fuels company welcomed a government inquiry into the failure of the refinery to Auckland fuel pipeline last year, reiterating its concerns about the lack of resilience in Auckland's supply chain. New Zealand Refining shares were lower.
3 Things Markets Will be Watching this Week
- Tensions between the US & China following the arrest of Huawei’s chief financial officer will likely dominate headlines.
- The latest US inflation figures are published on Thursday morning (AU/NZ time).
- Australian house price data is published on Tuesday.
Have a Great Day,