By: Anas-ur-Rasheed Khan
In the US, after yet another volatile week, investors are struggling to cope with investing in an environment where market dynamics continue to be shaped by geo-politics. Last week saw the markets writing-off trade war rhetoric and rallying to recover losses; progress was impeded by the announcement of coalition air strikes in Syria followed by lower than anticipated banking sector earnings on Friday, which ended a stellar week on a sour note. Nonetheless, the trajectory from here on out looks to be upwards. Earnings season is upon us, the SPX (S&P 500) is still more than 5% off its 2018 highs, and with corporate earning projected to grow 17.3% in the first quarter of 2018, we might be in for another green week. Note that more than 200 companies are scheduled to report their Q1 earnings this week, so were definitely in for an eventful week in the markets.
In Australia, markets continue to be dictated by what is happening in the US. Fear continued to dominate the markets in the midst of trade war rhetoric and tensions in Syria last week. However, if Wall street is able to flush out decent earnings reports this week, we might see a corresponding rally in the ASX200.
Gold is thriving in an environment where fear and geo-political tensions are rife. Gold futures ended on a positive note in the last trading session of the week on Friday. However, a rising US dollar might provide some headwind going into this week. Oil is also rallying following news of coalition air strikes in Syria. Nevertheless, analysts suggest that there is more to the picture; global stock piles are dwindling and approaching their five-year average, which OPEC said earlier it would target. Hence, we might see more upside in Oil heading into next week.
Forex is a frustrating market to be in at the moment. With so such instability playing out globally, uncertainty and volatility continue to dominate affairs. The Yen is presumed to be a safe-haven currency and usually benefits against the USD in uncertain times. The fact that the US dollar eked out gains against the Yen on Friday, suggests that the market is easily shrugging off geo-political instability. The Aussie dollar, however, posted some gains against a strengthening USD after falling to a six-week low earlier this year. Monetary policy expectations will continue to shape the markets for the foreseeable future; the downtrend in the AUD might continue for some time as interest rates in the US are poised to go up at least 3 times this year, whereas the RBA has been reluctant to fiddle with the cash rate here in Australia.
A good earnings season might provide enough evidence for the Fed that the economy is in good shape, and, hence, warrants another rate hike. And since this is first earnings reporting season following the implementation of Trump’s tax cuts, that might very well be the case. However, monetary policy expectations will continue to be in focus going forward. As the stock market is poised to rise this week, we might see yields go up in the very short-term and the yield curve ascend back to normality.
Source: Marketwatch, Yahoofinance