Investment update for June 2018
Trade tensions continue
Looking back over the financial year, the global economy has improved considerably. Business and consumer confidence are at high levels and unemployment rates globally have steadily declined. As a result, central bank policies are slowly shifting away from years of low interest rates and quantitative easing.
However, as President Trump, North Korea, Iran, Saudi Arabia, Italy and Brexit continue to be in the headlines, geopolitical risks remained heightened.
Trade tensions continue to weigh on equity markets. The Trump administration approved 25% tariffs on $50 billion worth of Chinese goods, with the first tranche of tariffs taking effect on 6 July 2018. China promptly announced a proportional retaliation, imposing 25% tariffs on $50 billion worth of US imports, also to be implemented on 6 July. These escalations in the US/China trade war sparked volatility in late June.
For the first time since the early 2000s, US cash rates rose above Australian rates. The US federal funds rate was lifted from 1.75% to 2% in June following sustained economic expansion, a strong labour market and inflation moving towards the 2% target rate. Inflationary pressures appear to be building, particularly with the fiscal boost and low unemployment rate.
During the last financial year, oil advanced over 61% and the Australian dollar depreciated against the US dollar (-3.7%), Euro (-5.7%) and Sterling (-4.7%). The US dollar also showed strength against most currencies.
China’s economy continues to slow as their deleveraging campaign has reduced the available liquidity. To support lending to small enterprises, Chinese policymakers decided to cut the Required Reserve Ratio (RRR) for banks by 0.5%, effective 5 July 2018, essentially injecting more cash into the financial system.
In Europe, the European Central Bank (ECB) made decisions to reduce its quantitative easing purchases and cease its Asset Purchasing Program (APP) by the end of the year. ECB interest rates will likely remain unchanged through the next Australian summer.
Within Australia, the RBA suggested that the board would continue to hold its neutral policy stance, keeping the rate at 1.5%, as inflationary pressures are still modest and wage growth remains subdued.
Please view our full investment commentary brought to from our advisors – Frontier – for a more in depth analysis of market conditions this month.
We trust you find this information useful in understanding how your AvSuper investment is being influenced and welcome your feedback on how we can improve the information we provide to you.