So Much Negativity – It Is Time For Some Positive News

The Australian equity market had a positive last week hitting fresh highs for 2016.  Earnings season began last week in the U.S. with results looking better than expected helping their market to fresh highs;  however it is still very early in their reporting season and most companies in the U.S. will release figures later this month. In Europe, the Bank of England left rates on hold Thursday night but signalled cuts in August in response to Brexit. Chinese second quarter GDP released Friday beat expectations with growth for the June quarter holding steady at 6.7%.  Back home, jobs data was released, with unemployment edging up to 5.8%, despite the estimated creation of 7,900 jobs. This is the first time in five months that unemployment has gone up in Australia.

So to equities and with the US hitting new highs what is pushing markets higher?

1) Interest Rates Expected To Stay Low In The US:  Interest rates globally are low and they are staying lower for longer.  Globally investors expect yet more monetary stimulus from the world’s major central banks which will add to the liquidity glut. 

2) US Reporting Season:  The largest US bank by Assets, JP Morgan chase is benefiting from a huge lift in lending due to low US interest rates.  The bank recorded a more than 10 per cent rise in lending volumes compared to a year earlier, its third consecutive quarter of double-digit loan growth.  And this helped lure investors back into bank stocks. JP Morgan’s share price finished 1.5 per cent higher late last week while the KBW Nasdaq Bank Index, which tracks large commercial lenders, climbed 1.7 per cent.  The big banks that reported on Friday night beat expectations with Wells Fargo and Citigroup trading well post their results and Goldman Sachs jumped 7.5% ahead of its results tonight  Back home and our banks also benefited from the global sentiment  with the majors finishing more than 2% up for the week.

3) Global Financial Conditions:  One closely watched Wall Street gauge, the Citigroup US Economic Surprise Index – which tracks actual economic figures relative to expectations – is now flashing positive as a spate of recent data has exceeded somewhat gloomy expectations. 
Many analysts see the Citi index as a good reflection of investors’ mood. The index has been stuck in negative territory for much of the past 18 months, which has prevented the US share market from breaking out of its narrow trading range to hit new highs.

Not surprisingly, the Citi index jumped after last week’s surprisingly strong US jobs report, and is now close to its highest level since January 2015.

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