North Korea Plays Second Fiddle to Central Bankers

North Korea Plays Second Fiddle to Central Bankers

The Standard & Poor's 500 topped 2500 for the first time as technology stocks, including Apple, recovered their upward momentum and as investors dismissed somewhat disappointing US retail sales and industrial output data.

North Korea continues to ratchet ever higher its rhetoric against the US — and the US does its best to respond in kind — investors appear to be paying more attention to what global central bankers are saying, or at least implying.

Fed Rethink on Rates due to Inflation

The US dollar is poised to start this week on the backfoot amid a deepening rethink on the Federal Reserve's rate hike path, and it's far from clear that this week's August consumer price data will help. And that's positive news for Australian dollar bulls who see US84¢ to US85¢ within reach. 

Domestic investors await Thursday's labour force report for the latest take on the strength of the economy.

Increasingly the debate over low inflation is becoming a debate over whether central bankers are looking more determinedly at economic growth for direction. That's in part because of hopes held by US policymakers for most of this year that low inflation would prove transitory are now turning into concern that structural challenges are at work.

North Korea blunts bullish Wall St lead

Traders are once again buying into safehaven currencies such as the yen and Swiss franc as North Korea's bomb test casts a pall over the start of ASX trade.

The advance was modest on Wall Street, but enough to keep all three major US benchmarks hovering near record highs. The tech-tilted Nasdaq finished at a record closing high after its best week this year.

It was the latest slew of US data that bolstered optimism. For global investors, the focus remains on what the US central bank is going to do this month and later in the year.

Wall St is closed on Monday for the Labor Day holiday.

Growth in China's manufacturing sector unexpectedly accelerated last month. We'll get data this week on China's services sector as well as trade.

Central Banks Stick to Scripts

A much anticipated speech by Federal Reserve chair Janet Yellen on financial stability at the annual gathering of global central bankers at Jackson Hole proved to be rather academic; in other words, policy drew no more than a passing mention. Dr Yellen, however, argued strongly for the US to retain the majority of the financial regulations put into place after the financial crisis, saying the rules helped bolster the economy.

Hours later, Mario Draghi, the president of the European Central Bank, delivered a speech and he too held to script, arguing against a rising protectionist wave around the world; the euro rallied against the greenback as Mr Draghi didn't try to rein in the single currency, which has advanced more than 13 per cent against its US counterpart this year.

This week the focus will shift to tax reform in the US and a mix of economic data including China's official and Markit manufacturing PMIs for August. The highlight US releases include consumer confidence, personal spending, durable goods orders and August's nonfarm payrolls data on Friday.

Local reporting season slows dramatically this week ahead

Markets Lose Ground

Iron ore surged 3.5 per cent on Friday as future contracts soared in China amid more speculative bets on short-term demand for the steelmaking raw material. Oil rose more than 3 per cent to its highest since May on signs of tighter supply in the US. Base metals were mixed; while aluminium and copper were lower or bid lower, they held near multi-year highs.

On the reporting scheduled this week are BlueScope, Brambles and Fortescue Metals Group today; Amcor, Sydney Airport, BHP Billiton, Seven Group and Oil Search on Tuesday; Coca-Cola Amatil, IAG and Woolworths on Wednesday; Alumina, Flight Centre, South 32, Nine Entertainment, Spotless and Santos on Thursday; and, then Qantas, AWE and Atlas Iron on Friday. There are many more poised to report too.

Better than expected earnings from Corporate America have helped the Standard & Poor's 500 weather the North Korea crisis, the political chaos caused by President Donald Trump's response to racial violence in Charlottesville and the terror attacks in Spain.

Market Speed Bumps

US shares were broadly higher, with the S&P 500 Index gaining the most since April and the Dow Jones Industrial Average and Nasdaq Composite Index also rising. Volatility retreated, as the CBOE Volatility Index, or VIX, fell below 12.5 after topping 16 on August 10. European stocks advanced after posting the biggest weekly drop since November as investor concerns over a standoff between the US and North Korea eased.

US Powers Higher

The Dow powered higher for an eighth consecutive day over the weekend as more positive economic news strengthened the US Federal Reserve's bias toward tighter monetary policy and the Trump administration revived chatter about tax reform.

The Dow Jones IA above the 22,000-point mark.

Total nonfarm payroll employment increased by 209,000 in July, and the unemployment rate was little changed at 4.3 per cent, the US Bureau of Labor Statistics reported late on Friday. Employment growth has averaged 184,000 per month thus far this year, in line with the average monthly gain of 187,000 in 2016.

Analysts, on average, expect S&P 500 earnings to have grown 12 per cent in the second quarter and they project earnings up 9.3 per cent for the September quarter.

Among the US companies poised to report this week: CBS, Marriott, CVS Health, Walt Disney, Ralph Lauren, Twenty-First Century Fox, Office Depot, Agrium, Nvidia and Snap as well as retailers Macy's, Nordstrom, Kohl's and JC Penney.

Fresh Highs, Reporting Continues

A fresh record close for the Dow, rising overall global earnings optimism and further gains in oil

The local reporting season begins in earnest this week on high expectations

The week however will see a continuing focus on American corporates for sentiment

Locally the focus this week, for a second consecutive week, is on the Reserve Bank. Tuesday brings a policy meeting, a no-change rate decision is expected. Words will be parsed as usual for any bias tweak

The week ahead brings some fresh data on China's manufacturing sector. Solid Chinese data has bolstered expectations that demand for raw materials will at least be steady for the next several months.