The reign of the so-called FAANGs (Facebook, Apple, Amazon, Netflix and Google) has made way for MAGA (Microsoft, Apple, Google and Amazon), the new acronym for the narrower group of technology companies taking the market higher.
This shift was already in the making before the large fall in Facebook’s share price and started with the Cambridge Analytica/Russian manipulation incidents. Meanwhile, Netflix lost its mojo when it reported a shortfall in subscriber growth. It has also had no hit television shows/movies recently.
Bank of Japan in spotlight
However, the main issue for markets this week, although it’s unlikely to get big headlines, will occur in Japan when the Bank of Japan (BOJ) meets to review monetary policy. A policy change may occur following the BOJ intervening in the 10-year bond market last week after yields hit 18-month highs. The BOJ wants the yield lower, ideally below 0.1 percent.
Because of its importance in global financial markets, the BOJ meeting will be closely watched, especially as the market is concerned about a change in policy that could cause the yen to strengthen.
Policy moves in China
Across in China, bond yields have also risen recently after falling for most the past six months due to a loosening of monetary policy by Chinese policy makers, prompted by the threat of a US trade war.
With the trade tensions continuing, Chinese fiscal policy will now also be loosened to support growth. Measures include tax cuts and fees reductions. While the impact of these measures will be small, they show the focus of Chinese policymakers is now on supporting growth, rather than deleveraging.
The announcement of fiscal stimulus provided temporary support to China’s equity markets. They have been struggling since mid-June, when US President Donald Trump approved tariffs on $50 billion worth of Chinese imports.
Still on trade wars, China continued to stoke the trade war and stalled an antitrust review of Qualcomm’s $44 billion acquisition of NXP Semiconductors NV, effectively killing the deal. As all major semiconductor manufacturers have a footprint in China it’s now unlikely that Qualcomm will be able to expand by acquisition due to further reviews. Google Qualcomm if you don’t know who they are but they are integral to mobile phones globally.
Emerging market equities look positive
Despite some worries about China’s economy, equities elsewhere in the emerging world performed strongly. In particular, the MSCI Latin America Index rose by 6 percent. This is different to 2015-16 when concerns about China last came to the fore and emerging market equities were dragged down on fears of a knock-on effect from a China slowdown.
One partial explanation is that most recent commentary has focused on China’s economy slowing, rather than the possibility of a “hard landing” with severe consequences for the global economy.
GDP headlines US economic news
Turning to North America, the US reported a 4.1 per cent quarter-on-quarter annualised increase in GDP. This was broadly in line with consensus expectations and the highest growth rate since 2014.
Healthy growth in the US over the rest of this year will allow the US Federal Reserve to keep hiking interest rates once-a-quarter, ultimately lending the US currency some support.
CPI nudges higher
Not much on the radar locally. Consumer Price Inflation (CPI) in Australia rose 0.4 percent to 2.1 percent annualised in the second quarter, with underlying measures staying at 1.9 percent.
The rise in CPI is unlikely to make the RBA want to raise interest rates sooner, especially as most of the increase was due to the temporary influence of a recent leap in petrol prices.
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