Market sentiment will be tested heavily in the next five days by a combination of central bank meetings, a stronger US dollar, data releases around the world and quarterly earnings reports in the US and Europe.
At a time when markets are at or close to record highs in the US and recovering their poise in Europe after the Brexit shock, the week’s events will be a big test of this increasingly upbeat outlook.
This confidence is despite big global investors keeping their cash levels at the highest level since 2001, according to the monthly Bank of America Merrill Lynch monthly survey of big investors.
The Stoxx 600 index fell 0.7% on Friday, but the US S&P 500 rose 0.5% helped by good earnings results and better than expected business conditions surveys for the US – but not in the UK and Europe where the surveys are hinting at a slowdown Indeed the UK could be facing a dose of stagnant growth and rising cost pressures – called Stagflation).
Markets in the US though ended on an upbeat note on Friday and as a result the ASX 200 futures contract rose but only by 4 points or 0.1% pointing to a mildly positive start to trade for the ASX later this morning.
Gains are likely to be tempered by softer commodity prices (gold, oil, iron ore) thanks to the stronger US dollar. The Aussie dollar ended the week around 74.40 US cents, down around 1.2 US cents on the previous week.
It’s now a month since the Brexit panic on June 24 and in that time, US shares are up 7%, Eurozone shares are up 6%, British shares are up 10%, Australian shares are up 7% and Japanese shares are up 11% (boosted by the government’s upper house win though).
The only really lasting impact (so far) has been on the British pound which is down another 4% leaving it down 11% from June 23rd, which reflects the negative impact of Brexit on the UK economy and expectations of worse to come.
Over the last week the rally in shares continued with US shares up 0.6%, Eurozone and Japanese shares up 0.8% and Australian shares up 1.3%. Chinese shares though fell 1.6%.
A combination of good economic data, good US profit results, the absence of a major negative impact outside the UK from Brexit and talk of more policy stimulus in parts of the world, are continuing to help equities, especially in the US.
On Wall Street, the S&P 500 recorded its fourth straight weekly gain — the longest weekly winning streak since March as better than expected second quarter US earnings helped push stocks to record highs.
The S&P 500 advanced 0.6% over the week to end at 2,174.91, the Dow rose 0.3% over the week to 18,569.90 — its longest winning streak in four months.
Nasdaq rose half a per cent on Friday to close at a 2016 high of 5,100.16. In Australia, the ASX retreated from its 11-month high on Friday, slipping just below the 5,500 level it breached for the first time since August as investors took a rest from their two weeks of enthusiasm.
The S&P/ASX 200 ended Friday trade down 14 points (or 0.3 per cent) to 5498.2 points, but up 69 points (or 1.3%) for the week. The All Ordinaries finished the week up 64 points, or 1.2%, to 5,574.3 points.
