The Weeks Ahead and in Review: Nov 04

Two weeks ago, it was cautioned that insights into the impact of the Trade War should be sought out by gauging China’s demand for goods and services, not the sensationalised rhetoric being created by media sources. Rio Tinto’s investor report last Friday provided provisional figures for their 2019 operations and triggered a quick uptick in the share price from roughly $90 per share to $93. The critical piece of information? That iron ore shipments had remained virtually unchanged and capital expenditure during the year had been $500m cheaper than anticipated. Of course, the chief purchaser of Rio’s iron ore operations is China. The result of this information is the implicit finding that China has remained resilient in its demand for iron ore so far; a proxy for infrastructure-wide demand driven by continued expansion. Compounding this was the unexpectedly positive news regarding growth in US jobs figures. The byproduct of that revelation was an increase in the US SPY Index, which flowed through to the ASX. If the US jobs market is stable for the time being, and Chinese demand for infrastructure has not swayed, it is clear that the current impacts of the Trade War have been subdued, to say the least.

In the coming fortnight, a certain extent of financial tumult is to be expected on the back of the report on retail sales for October. Household consumption was sluggish in GDP figures for the year ending June 2019 and was intended to be boosted by Prime Minister Morrison’s tax-cuts as well as three consecutive rate-cuts from the RBA. If the report paints a picture of continued reluctance from households to part with their discretionary income – preferring instead to pay down their debts – then it is likely to send retail stocks tumbling.

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