Investment update for September 2018
Global signs of slowdown amid trade tensions
In September, global business conditions were at their lowest level since November 2016, after an export trade downturn negatively affected production, orders and employment. The most notable weakening was in new export orders, which fell for the first time since June 2016. That decline is a marked contrast to the near seven-year high increases seen at the start of the year and coincided with a period of growing global trade tensions, led by the US.
Despite the continued near term risk of those tensions and a slowdown in momentum, growth in the US appeared strong and the economy continued to expand. There were signs of the housing market cooling, with lower US home sales for September than expected. Jobless claims for the month declined more than expected as the US labour market continued to tighten. Capital expenditure expanded with shipment of durable goods expanding 2%.
Within the Eurozone, there were signs of weakening, with growth on a downward trend since its peak in the middle of 2017 and an exports growth slowdown led by China. Financial conditions remained extremely accommodative and supportive for the economy, despite the European Central Bank’s gradually tightening monetary policy. Quantitative easing is slated to end in December. Brexit remained on the minds of Europeans, with the eventual outcome still unclear.
Economic growth held up far better than financial markets in the emerging markets over the past few months. While some countries will continue to do well, growth in aggregate slowed and may continue to decelerate over the coming year. As momentum slowed and trade tensions escalated, worries about China’s economy grew, and officials are boosting policy support. Within equity markets, emerging markets continued to underperform developed markets, with a rising US dollar.
Australian domestic GDP growth was supported by strong demand from consumers and government. Business sentiment remained strong but showed some signs of peaking. The labour market continued to strengthen, and employment and wages grew. ASX300 was down by 4.5% in the month. 10-year bond yields hovered at 2.8%. The RBA kept the cash rate unchanged at 1.5%.
The AUD/USD fell marginally from USD$0.7260 to USD$0.7222.
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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