Australian Economy – More bad than good amongst the main data points for the month with lower export prices weighing on our trade balance and unemployment back to 6%1. But there was a rise in business sentiment and a rebound in construction to somewhat offset any gloom. In other news, the much maligned carbon tax was done away with after some PUP antics, and the PM signed a new free trade agreement with Japan.
Global Economy – A huge rebound in US GDP growth reported late in the month, following strong employment growth2 and manufacturing activity data, has started to accelerate questions about when interest rates will begin to be lifted by the Federal Reserve. Across the Atlantic the news was nowhere near as rosy, with European growth still struggling to stay in positive territory, albeit with strength still emanating from the likes of Britain and Germany. And in the east, China seems to have bounced back from a short-term lull, with GDP growth and manufacturing data both better than expected.
Investment Markets – Asia-Pacific markets enjoyed their distance from the geopolitical turmoils facing those further west, with Chinese equities up 8.5%, the Australian stock market up 4.4% and Japanese stocks rallying 3.0%3. This was in contrast to Europe and the US who were down 3.5% and 1.5% respectively3.
Outlook – The downing of flight MH17, along with the conflict between Israel and Gaza has only added to fears about the growing threat of instability in the global landscape. Such threats to peace are able to cause economic damage in a number of ways, including rising energy prices and the breakdown of trade, and this can have an impact on share returns and volatility. Given the heat in markets as of late, there is the potential for these events to heighten downside risks, with a significant correction being a distinct possibility.
S&P/ASX 200 – 12 months to 31 July 2014
Source: Core Equity Services
Footnotes: 1. Data from Australian Bureau of Statistics; 2. Dept of Labour, USA; 3. Bloomberg data.