The Week Ahead
11 March

The Week Ahead – 11 March

Financial markets were a little mixed over the week. While domestic equities were slightly higher, supported by a solid return from local and global bond markets, global equities range traded with unhdg global equities lower on the back of the rebound in the A$ (+1.6% w/w), while hdg global equities were flat. While the latest payroll data in the US (+275k) continued to point to a ‘goldilocks’ scenario for the US labour market, the pickup in the monthly inflation print for Feb (f’cst +0.4%, +0.1% pcp, +3.7% y/y) reiterates our view that US Fed cash rates will remain higher for longer. Given the extent of the recent equity market rally, the potential that rates will not move until the 3q24 may see some instability across global equity markets in the near term. While the recent corporate reporting seasons in the US and Aust resulted in an improved outlook for EPS growth, equity markets are fairly priced in our view, and the potential for some level of consolidation at current levels would not be unexpected should inflationary data disappoint. The release of the Michigan Sentiment Index (f’cst 77.2 pts, +0.3 pts pcp) along with retail sales and PPI data (f’cst 1.1%, +0.2% pcp) will be the main focus this week for US markets. With both measures showing a further uplift this will add to further short term consternation across financial markets. In addition, US Housing starts (Feb) are also set to show solid gains (+1425, +7.0% m/m v’s 1331k pcp) although the overall strength of the housing market is set to remain benign (NAHB Index f’cst 48 pts) despite moving off its covid/Fed rate hike lows. In Aust, the NAB Business Confidence survey and housing spending data will be the main focus of the week.  With Treasury and RBA data beginning to show that mortgage stress has increased over the last 12 month period on the back of higher cash rate and rising costs across many staple household items, we expect that consumer spending is likely to moderate through the 2q24, but reflective on an environment where the RBA will struggle to cut rates with non-tradeable goods inflation (5.4% y/y) remaining well above its 20yrs average (+3.2%). In China, the focus will be on new home price data, which is likely to show further declines (9th consecutive mth). House prices are down 25-40% from their peak and continue to add to the challenges facing the Chinese Govt as it seeks to restore economic activity and consumer confidence given that housing accounts for 60% of household assets.

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