Australian Economy – With concerns over the medium-term condition of the Australian economy, the RBA has moved to add some stimulus to the economy by cutting interest rates to the ultra-low setting of 1%. With zero now a real possibility, the RBA will be keeping a close eye on a number of factors: (1) Unemployment, which remains steady for now at 5.2%1; (2) Inflation, which picked up a little above expectations in the most recent reading; (3) Commodity exports, which have pushed the trade surplus to record highs; (4) Property prices, which have showed some signs of an end to price falls; and (5) Global geopolitics, which can affect all of the previous factors (especially the Sino-US trade war).
Global Economy – The Fed confirmed market expectations of its new dovish stance by cutting interest rates to 2.25%. This is at a time in which unemployment in the US at all time lows and fiscal settings are also extraordinarily loose (as a comparison the US Government currently spends about $500 billion per year more than the similarly-sized EU). The other major news of the month was the arrival of Boris Johnson to Number 10 Downing St and the heightened risks of a 'No Deal' Brexit.
Investment Markets – It was a mixed month for equity markets as markets processed the implications of a change in monetary policy settings and other major geopolitical events. The Australian market was one of the better performers, finishing the month up around 3%. Most other markets were flat, though some did end in the red, such as Hong Kong, which was down almost 3%2.
Outlook – The US bond market is pointing to a recession as the yield curve sits inverted at various points along the curve. The market will be keenly focussed on any further hints of rate cuts, while also keeping an eye on trade war and Brexit negotiations. With macroeconomic policies already set to stimulus mode, any recessionary pressures could be difficult to ease or eliminate.
S&P/ASX 200 – 12 months to 31 July 2019
Source: Core Equity Services
Footnotes: 1. TradingEconomics; 2. Bloomberg data .