Positive, and cautious start to the week for equity investors
Local investors appear poised to start the week on a positive note, bolstered by a rally on Wall Street and amid expectations of a federal "election" budget.
ASX futures were up 38 points or 0.6 per cent after all three US benchmarks advanced more than 1 per cent over the weekend, fuelled by Warren Buffett's announcement that he increased his stake in Apple by almost 50 per cent in the first quarter. Berkshire Hathaway now owns about 240 million shares in Apple, a $US44 billion ($58 billion) stake. The Australian dollar edged 0.1 per cent higher.
Local investors may opt for a somewhat more cautious start to the week, pending the release of the federal budget.
'Improved' budget position
"The budget's position has improved markedly" both in the last year and even since December's mid-year update, NAB economist Kaixin Owyong wrote. A stronger economy, higher commodity prices and record employment growth have delivered as much as a $10 billion improvement in the budget bottom line since the government's fiscal update was issued in December.
"While our analysis indicates favourable base-year effects from an improving economy could conceivably have seen a return to surplus as early as 2019-20, Treasurer Scott Morrison has stated the budget will return to surplus in 2020-21, as previously planned," she said.
"Rather than bringing forward the return to surplus, the improvement in the budget's bottom line has given the government room for income tax cuts and to further increase infrastructure spending, a choice that has received some criticism," the NAB economist concluded.
Ms Owyong said "the political reality is that this is an election budget, with the next federal election due before May 18 in 2019".
Investors will take a close look at the Treasury's forecasts for economic growth, and its forecast for key commodities including iron ore.
In the Reserve Bank of Australia's Statement on Monetary Policy on Friday, the bank held to its forecast that the economy will gather speed to 3 per cent this year, and 3.25 per cent in 2019, from 2.3 per cent in 2017.
There is more than the budget on the schedule. There will be a range of second-tier data that will provide insight on the strength of the economy including April's NAB business survey today, March retail sales tomorrow, Westpac-MI's May consumer confidence on Wednesday, consumer inflation expectations for May on Thursday and housing finance for March on Friday.
The retail sales data and consumer confidence figures "will probably provide further evidence that the Australian economy performed well at the start of the year", said Capital Economics' Paul Dales.
Among the more noteworthy reports from overseas will be China's April trade balance on Tuesday and the Bank of England's policy meeting on Thursday. The RBNZ will also have a policy meeting on Thursday. And this morning, it's Westpac's turn to report fiscal year results.
Buffett boosts Wall Street
It was Buffett's overwhelming optimism for Apple though that both helped underpin the tech sector – renewing the FANG group – and Wall Street's broad advance.
With Buffett's endorsement, Apple surged to a record high and its market cap topped $US900 billion, reviving bets on whether it or Amazon will reach the $US1 trillion mark first. At the close of trading, Amazon's market value stood at $US767 billion.
In Apple's wake, Facebook gained 1.5 per cent, Amazon lifted 0.6 per cent, Netflix added 2.7 per cent and Google's parent, Alphabet, rose 2.4 per cent.
The rally on Wall Street was broad, with 29 of the Dow's 30 components rising on the day. Chevron edged 0.4 per cent lower.
The key US news was that the jobless rate slipped last month to its lowest since 2000, pointing to a continuing strong labour growth. At the same time, wage growth came in lower than expected, easing concerns about inflation. The data overall affirmed expectations that the Federal Reserve will continue to gradually lift interest rates, with the focus on the June policy meeting.