Investment update for April 2018
Global growth continues to be strong
In April, business conditions and sentiments remained positive while tight labour markets continued to sustain wage inflation in countries such as the US. The US Federal Reserve kept the rate unchanged at 1.5%-1.75% in its recent meeting. Business conditions and consumer sentiment remain strong within the US.
Within the Eurozone, business activity and consumer confidence continue to improve. This suggests an improved outlook. The European Central Bank kept policy rates unchanged at -0.4% and projected their bond buying program will end in September 2018. Inflation continues to be marginally weaker than expected at 1.3%. There are suggestions the continued strength in momentum would see inflationary pressures pick up in late 2018. Unemployment continues to fall with the largest decrease in unemployment in Cyprus and Greece. This could support the positive outlook in the labour market.
In China, reforms continue to shift focus from the pace of economic growth to the quality of that growth. The People’s Bank of China (PBOC) benchmark interest rates remain unchanged and accommodative. However, there is tightening being implemented on various other interbank policy rates to manage the domestic debt levels.
In Australia, ASX300 increased by 8.4% on an annual basis while the 10-year bond yields rose further to 2.8%. The RBA kept the cash rate unchanged at 1.5%. The labour market has improved considerably. The unemployment rate is at 5.5%, while full-time and part time employment continues to strengthen. Inflation was slightly lower than expected at 1.9% for the year to March 2018. Wage inflation stabilised at 2.1%. This suggests the RBA would be likely to keep the cash rate lower for longer. Business conditions and consumer confidence continue to improve, suggesting a brighter outlook for the year.
The budget deficit is estimated to be $18.2 billion in 2017-18. This compares to $23.6 billion in the government’s Mid-Year review. The budget is projected to continue to improve due to stronger corporate revenue (due to reduce tax losses and higher commodity prices), stronger personal tax revenue (due to higher employment) and reduced spending.
Please view our full investment commentary brought to from our advisors – Frontier – for a more in depth analysis of market conditions this month.
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