Economic Commentary

Economic update – May 2017

In summary

The Budget’s bank levy, weaker commodity prices and signs of a slower domestic economy all contributed to the local equity market falling in May. Interestingly, the Australian dollar did not fall as much as these developments might have suggested. However, the outlook for commodity prices and both US and Australian interest rates, may indicate that a further weakness of the Australian dollar is likely in coming months.

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Economic update – April 2017

In summary

Equity markets continued to rally in April, though with a little less conviction than in recent months. The stronger economic growth seen in a number of countries since late last year now appears to be continuing. This, combined with elevated equity valuations and very low levels of equity volatility, suggests equity markets are vulnerable to some retracement in coming months. Bonds would be a natural beneficiary of this, especially since inflation in the United States (US) looks likely to be lower than markets had previously expected.

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Economic update – March 2017

In summary

The latest data shows the Australian economy looking a bit softer, while the US economy continues to display good positive momentum. In these circumstances it is not surprising to see the Reserve Bank of Australia (RBA) leave the cash rate at 1.5% and the US Federal Reserve (the Fed) lift its cash rate to nearly 1.0%.

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Economic Snapshot – February 2017

In summary

February saw more signs of economic conditions improving, though perhaps less in Australia than in some other countries. Although the local economy grew a respectable 1.1% in the December quarter and business conditions improved in January, nevertheless the labour force remains under-utilised and business investment spending is expected to decline further. The strength of the Australian dollar is not helping and the Reserve Bank’s expectations about the economy this year may prove too optimistic. The RBA has left the cash rate at 1.5% and financial markets expect this to remain in place until the start of a new tightening cycle in early 2018.

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Economic Snapshot – January 2017

In summary

President Trump was the main subject in January’s news causing some consternation in financial markets and leading to weakness in the US dollar. That in turn helped emerging markets and gold to outperform, while Australian equities underperformed in the month.

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Economic Snapshot – 2016 in review

In summary

2016 was a dramatic year for the world’s financial markets. The year started with collapsing oil prices, fears of recession and deflation, equity markets falling sharply and investors favouring bonds and “expensive defensives”. By the end of the year we had rising oil prices, renewed optimism about the United States (US) growth and inflation, cyclical equities rallying, bonds selling off and defensives falling out of favour. In between we had on again/off again OPEC deals, elections and Brexit. The solid overall returns recorded by a number of asset classes in 2016 mask considerable within-year volatility and within-market sector rotation.

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Economic Snapshot – November 2016

In summary

November was a dramatic month for the world’s financial markets with significant market volatility, some of which are attributable to Trump’s victory.  Financial markets were aggressively selling risky assets as the vote count proceeded, however turned around and moved back into cyclical equities and out of defensive assets.  Some of the price movement has been the most significant we have seen in a while, as illustrated by the charts below.  Although the markets reacted to Trump’s victory, it is far too early to say what will happen and how much of the campaign statements will become reality.

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Economic Snapshot – US Election

The surprise US election result has generated confusion and volatility in financial markets. Comparisons are being made with Brexit, if only for the unreliability of public polling.

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Economic Snapshot – October 2016

In summary

Bond, equity and commodity markets retreated around the world in October as investors became more concerned about inflation, central bank policy and the US election. Comments from policymakers and politicians about the diminishing effectiveness of monetary stimulus contributed to these concerns. Renewed disagreement among oil-supplying nations undermined the price of oil. Equity market volatility spiked sharply. The US earnings season produced a mixed crop of reports, but the overall tone of economic data supported the view of moderate economic growth with contained inflation. Economic growth in China continued to improve.

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Economic update – September 2016

In summary

September was a challenging month for global financial markets. The first half of the month saw both bonds and equities retreat on concerns the Federal Reserve would lift interest rates at its meeting on the 20 – 21 of September. As things turned out, the Fed left the cash rate unchanged and revised down its forward profile of interest rates. The markets were reassured by this, leading bonds and equities to recover ground lost earlier in the month.

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