Australian Economy – Interest rates have moved closer to zero, with the RBA cutting rates to 0.75% in October. Continuing sluggish employment, retail sales and low inflation have given the RBA the room to err on the side of caution, along with seeming in action on the fiscal front. Even though construction activity continues to fall of its highs, manufacturing and services activity have been relatively strong1.
Global Economy – There have been some signs of a trade deal between the US and China, however, this is still likely to be dragged on further. In similar fashion, the Halloween deadline for Brexit was extended, giving the UK people one more chance to vote. Over the past month, the odds of a 'No deal' Brexit have jumped back out with the clear favourite now being for the divorce agreement to be settled sometime early next year (though 'No Brexit' odds have also increased somewhat)1.
Investment Markets – Equity markets were a little more subdued in October, with some hope of a simmering of US-China tensions helping to support prices. The Australian markets was one of the poorer performers in October, finishing the month slightly down. Most other markets had small gains, with Japanese equities leading the pack, up over 5% for the second straight month2.
Outlook – The market is hoping for a resolution to both the US-China trade war and Brexit by Christmas. However, with both the US and UK in election mode, and with the impeachment trial of Trump likely to heat up, there would be concerns that both processes could be delayed a while longer. Talk of recession may be early, but investor sentiment may soon be tested if economic data continues to deteriorate.
S&P/ASX 200 – 12 months to 31 October 2019
Source: Core Equity Services
Footnotes: 1. TradingEconomics; 2. Bloomberg data .