Investment update for August 2018
US GDP growth surges and inflationary pressure builds
In August, US GDP growth surged to 4.1% which is the strongest seen in 2018. Major contributors to growth were domestic consumption and net exports, while inventories detracted value. Non-residential fixed investments contributed strong results during the second quarter, and growth at 7.3% was also strong. Inflationary pressure continued to strengthen across various measures in the market. Wage inflation remained relatively moderate in contrast. The labour market continued to improve as the unemployment rate dropped to a low 3.9%, although only 157,000 jobs were added in August, rather than the expected 190,000. Business and consumer confidence remained positive.
In the Eurozone, macroeconomic data supported a positive outlook. The Eurozone composite Purchasing Managers’ Index (PMI) was up in August. Manufacturing production and service sector activity rose at similar and slightly faster rates. The levels of new work continued to increase during August, with the rate of growth slightly ahead of July, but business confidence regarding future activity continued to weaken. Inflation eased to a three-month low with price pressures acute within Germany.
In China, purchasing power globally remained above its expansionary level but underlying inputs such as new orders and exports declined marginally into the contractionary range. This was due to ongoing trade tensions between the US and China.
In global equity markets, MSCI emerging markets continued to underperform MSCI World as the US dollar rose. MSC EM (USD) was down 4.9% while MSCI World ex Australia (LC) outperformed by 1.4%.
In the Australian domestic market, the ASX300 grew 0.63% during the month, while 10-year bond yields hovered around 2.5%. The RBA again kept the cash rate unchanged at 1.5%. Housing approvals around the country fell by 5.2% on an annual basis in July. Business conditions and consumer confidence continued to improve, suggesting a brighter outlook compared to the first half of 2018.
At the end of August, the AUD was trading at 0.71889 AUD/USD which was the lowest rate in the past year.
Please view our full investment commentary brought to you by our advisers – Frontier – for a more in depth analysis of market conditions this month. The monthly commentary can also be viewed on YouTube.
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