Investment update for February 2019
More signs of global economic slowdown
Equity markets mostly rebounded from the rocky end of 2018 and stabilised in February. Despite the concerns of a global slowdown, equity markets have regained some momentum.
Inflationary pressures remained relatively flat. Some key regions such as Europe and China registered weaker than expected inflation in Q4 2018. On a global level, wage growth continued to be strong but that strength is not consistent across all developed markets. For example, some parts of Europe were affected by relatively high levels of youth unemployment.
In the US, the Q4 GDP growth was softer affected by the government shutdown in December. Inflation in the short term is expected to be below 2.0%. The US Federal Reserve retained their official rate range of 2.3%-2.5% and suggested a less aggressive stance on future rate hikes, compared to the meeting in December 2018. The change in tone reflects a central bank more sensitive to financial market stability and economic outlook. The US labour market continues an upward trend with a marginal 0.1% in wage growth in the month of January 2019. US capital expenditure softened in Q4 2018 but overall remains moderate.
Within the Eurozone, the economic growth continued to soften. The European Central Bank officially ended its asset purchase program but committed to keeping negative interest rates to support of the Eurozone economy. The Eurozone unemployment rate fell below its long term average to 6.7%. Exports from the Eurozone continued to trend downwards, primarily driven by a slowdown in export demand from China.
The Chinese economy continued to slow as deleveraging and trade related weakness prevailed in the domestic economy. Recent changes to the domestic coal import policy produced a negative impact on coal exports from Australia. China expects weaker economic growth at 6.0%-6.5 % in 2019, a marginal drop of 0.1% compared to 2018.
In Australia, the RBA did not change the cash rate of 1.5%. The RBA dropped its tightening stance, and emphasised the next move on the cash rate could likely be a hike or a cut. Since tumbling in Q4 2018, business sentiment on new orders and business confidence remained below trend. Despite strength in the number of jobs added to the domestic labour market, the ANZ measure of advertisements fell another 0.9% in February. This is the fourth consecutive drop in the measure.
Please view our full investment commentary brought to you by our advisers – Frontier – for a more in depth analysis of market conditions this month.
Read our monthly market snapshot.
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