Australian Economy – Despite a reasonably healthy set of jobs numbers for the month, other economic data seems to be pointing towards a decelerating economy1. Consumer sentiment has dipped back into recessionary territory and Westpac-MI's leading indicator index has dropped to -1.03%2. Housing construction activity continues to be the bright light in an otherwise gloomy picture.
Global Economy – US unemployment seems to have bottomed near the 5% level with overall participation keeping up with impressive jobs growth3. The first estimate for US GDP growth for the December quarter was on the soft side, with overall growth for 2015 coming in at 2.4% (the same as 2014). Unsurprisingly, the Fed decided to take it slow on any further rate rises, maintaining the fed funds rate at near 0%. Conditions in Europe have remained strained, with improvements in unemployment and overall business conditions progressing slowly. In China, the large debt bubble and weakening renmimbi have forced the central bank to increase their yuan holdings, with China's foreign reserves depleted by almost 20% in 2015.
Investment Markets – The last half of 2015 saw volatility rise and a downward trend in markets worldwide. 2016 started in similar fashion. Nearly all global equity markets were down more than 5% in January, with Hong Kong and Shanghai the worst hit, as concerns for the well-being of the Chinese economy started to spread violently4.
Outlook – Dark clouds have started to settle over global markets with fears of a bust in China growing. Further rate rises from the Fed look like they will be slow to come, which may cause imbalances should wages growth continue to pick up. The delay in raising interest rates further will also curtail future monetary policy stimulus - stimulus that might very well be needed if China's debt issues turn into a new global financial crisis.
S&P/ASX 200 – 12 months to 31 January 2016
Source: Core Equity Services
Footnotes: 1. Australian Bureau of Statistics; 2. Westpac-Melbourne Institute; 3. Dept of Labour, USA; 4. Bloomberg data.