Australian Economy – The month kicked off with a strong GDP reading of 0.9% for the September quarter1. A further drop in the unemployment rate to 5.8% was another encouraging sign for the Australian economy. However, weak housing and building approval data might be pointing to a slowdown in the construction boom.
Global Economy – A strong employment reading of over 200,000 in the US helped keep the unemployment rate near decade-low levels2. A cut by the European Central Bank to the official deposit rate further into negative territory signalled the persistent weakness of the Eurozone economy. This seems to be less of a worry to most investors than the ongoing slowdown in China, which has been highlighted by slowing manufacturing activity and a falling Renmimbi.
Investment Markets – The last month of 2016 saw a mild rebalancing of equity markets. Recent poor stock market performers, Australia and China, saw a bounce back in fortunes, with both equity markets finishing the year strongly. Most other markets went backwards for the month. In particular, European and Japanese equities finished off relatively good years with a stutter, falling 6.8% and 3.6% respectively3.
Outlook – Most of 2015 was spent waiting for the Fed to start raising interest rates. Now that this has been answered, 2016 may well be focused on how quickly rates will rise. However, given the worries over China, and the overall dovishness of the current Fed board, the pace of rate hikes could be much slower than what might seem appropriate.
S&P/ASX 200 – 12 months to 31 December 2015
Source: Core Equity Services
Footnotes: 1. Data from Australian Bureau of Statistics; 2. Dept of Labour, USA; 3. Bloomberg data.