Investment update for May 2019
More slow growth stirs uncertainty
Global economic growth continued to slow down, and international trade remained weak. The US outlook softened in May with slowing investment and fewer new orders in manufacturing and services. European economic conditions showed some signs of improvement.
Ongoing trade concerns contributed to the increased volatility of equity returns in May. Continuing trade wars negatively impacted markets amidst rising uncertainty. US tariffs, in place for some time, have put upward pressure on US inflation because the costs of the tariffs have mostly fallen on US businesses and households, without a clear reduction in the prices charged by Chinese exporters.
Australian equities were a standout performer, in part due to a further depreciation in the Australian dollar and a rise in the iron ore price. The iron ore price increase was driven by supply side factors (eg Brazilian supply issues) rather than representing increased demand.
Inflation in Australia remained muted. The RBA cut the cash rate by 0.25% to a historically low level of 1.25%. The rate cut was already priced into the markets.
In Australia, the unemployment rate rose to 5.2% in April 2019 (unchanged in May), and indicators suggested a level of slack in the labour market. Full-time employment fell marginally while part-time employment increased. The seasonally adjusted underemployment rate – measuring the fraction of the workforce that would like to work more hours – jumped 0.3 percentage points to 8.5%.
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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