Economic Commentary

Economic update – July 2017

In summary:

The sharp rise of the A$/US$ to US$0.80 was a highlight of the month. This was driven by expectations that the Reserve Bank would start to lift the cash rate sooner than previously expected and that the US Federal Reserve would not be able to lift the cash rate again until late next year.

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Economic update – 2016/17 review

In summary

Financial markets started the financial year 2016/17 in a state of surprise coming off the Brexit result just a few days before. Markets were also looking ahead to elections in Europe, as well as the US Presidential election with the contest of Clinton vs. Trump. As things turned out, the European elections proved more benign than feared, while the US election delivered a more unexpected result.

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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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