A look at the week gone by
I think the market is still very much focused in on whether growth is rolling over, that means the two things in focus were US/China trade relations and what was happening in terms of the bond markets.
In terms of the US/China relations, they seem to have improved somewhat this week. That was shown by movements in automobile concessions from China towards US automakers, and also China placing its first order of US soybeans, which will be delivered in the first quarter of 2019.So, that was a relatively positive move for markets this week.
But, in terms of market performance, it really does look like we’re clocking up the fourth consecutive month of declines. Much of it is going to hinge on the last two weeks of the year, which do tend to be pretty quiet.
But given that next week is the all-important FOMC meeting on interest rates over in the US, I think that’s going the key on whether markets will rally into the year end and we see a positive performance for the month of December or a negative one.
I think Theresa May winning the confidence vote in the UK was a mild positive for markets, also. It had a larger impact in terms of currencies, but if we had seen a no confidence vote go through, that would have been another distraction. Fortunately, that did not turn out to be the case.
What to look out for next week
There are a few things on the domestic calendar.
First of all, this week we heard from Westpac, the first out of the three of the big four banks to have their AGM this month. This was the first AGM for three of the majors since the Royal Commission, and we did see that first renumeration strike. So, Wednesday is going to be important, when we see both ANZ and NAB’s annual general meetings. That will be a key focus, especially given the softness in terms of the housing market and the remediation that is occurring because of what’s come out during the Royal Commission.
We will also be watching a few other AGM’s about town. Orica is on Wednesday and DuluxGroup and Incitec Pivot are on Thursday.
We’ll also get traffic numbers coming through from Sydney airport and Auckland airport next week for the month of November. That’s going to be interesting, given that we have seen a slowdown in arrivals coming from offshore, especially from China – which has slowed to about one per cent.
So, just watching to see whether those weaker trends do continue and the implications for some of those stocks that are exposed to tourism.
But, of course, the major event is going to be the FOMC event on interest rates over in the US on the 19th of December. Markets have pretty much priced in a rate hike.
The important thing there is going to be the dot plots for 2019 in particular, and whether we do see less rate hikes being expected for 2019. At the moment, the dot plots are at three rate hikes for 2019, but if we see that being wound back that could help to support a ‘Santa rally’ into the year end.
Expected outlook for the Australian market
Next week really kicks off school holidays, so this is when we start to get into the holiday volumes. But given the big event with the FOMC meeting, it could be quite a volatile one. The combination of the very important macro-event coming through combined with the lower volumes can usually mean larger movements in the markets.
But there’s a number of dividend payments hitting bank accounts as well, and that usually means some of that will find its way back into the Australian share market.
Really, we’re looking at a winddown into Christmas, especially post that FOMC meeting and lighter volumes coming through, as most of the market goes on holidays over the next couple of weeks.