What’s shaping investment markets today?
Key things to watch in Australian and other markets
The July to September quarter saw strong returns from share markets, with international shares being the standout, delivering over 5% for the quarter.
With markets focused on growth, the returns to bonds were flat. But in early October, volatility in both shares and bonds increased. This is not unusual, as risk tends to increase late in the economic cycle.
We take a look at key events in Australia and the US that are shaping investment markets.
- The impact of US rate rises
- Strength in the Aussie economy, soft housing prices
- Escalating trade tensions
- Looking ahead
The US Fed steams ahead but it’s not good news for everyone…
In the US, tax cuts and government spending have delivered buoyant consumer confidence, corporate profits and jobs growth, and this has led to a progressive rise in US interest rates.
In September, the Fed lifted interest rates for the third time this year, by a further 25 basis points to 2.25%.
While this has mostly been positive for US shares, it hasn’t been good news for everyone. Emerging markets such as Turkey, Argentina and Indonesia have suffered from increased borrowing costs and falling currencies.
Aussie economy still strong, but is the risk of housing overblown?
Locally, two themes dominating headlines have been a falling Australian dollar, and the slowing property market.
The Aussie dollar reached a two year low of 71 cents in September. A weaker dollar tends to have a positive impact on economic growth and inflation. And our second-quarter GDP data showed that domestic growth has reached its highest level since 2012.
House prices nationally are down around 2.7% from the peak in 2017. While not a large decline, difficulty in obtaining credit from banks has resulted in lower activity, which in turn, puts further pressure on prices.
That said, so long as the economy remains strong and unemployment low the prospect of an outright crash in housing seems pretty remote.
Why all the fuss about trade tensions?
US - China trade tensions have been escalating. On 24th September, tariffs imposed by the Trump administration on an additional US$200 billion worth of Chinese trade, came into effect.
In a tit for tat move, the Chinese authorities announced additional tariffs on US$60 billion dollars of American products.
So, should you be worried?
Well, an ongoing dispute between the world’s two largest economies has the potential to slow global growth. We do expect there will eventually be a negotiated outcome, though this may take some time.
Markets don’t like uncertainty, so the trade war remains a key point to watch.
In the meantime though, the implications for Chinese exporters has not escaped share markets, and the Chinese share index is now down around 23% from recent highs.
What will the rest of the year hold?
While markets remain strong today, economic conditions are not as rosy as they were last year, and ongoing political tensions will bring greater uncertainty.
While we think it unlikely that shares will continue to deliver the strong returns of recent years, a well-diversified portfolio should still deliver solid outcomes over the long term.
Your financial planner can help you construct a portfolio that’s aligned to your long-term goals.
