Hi I’m Nick Ryder, NAB Private Wealth’s Investment Strategist.
Welcome to our September monthly market update
So what happened in the major economies in August?
In the United States, economic data continues to be reasonably good. GDP
growth for the second quarter was revised up, from 2.3% to 3.7% annualised,
while unemployment fell from 5.3% to 5.1% in August. The jobs growth is
consistent with the US Federal Reserve’s desire to see further improvements
in the labour market before it raises interest rates. Despite the stronger
economic performance, the Fed’s decision to begin normalising interest rates
this month will depend on how it views heightened volatility in financial
markets and slower growth in China.
The European economy has continued to slowly improve, assisted by the
European Central Bank’s 1.1 trillion Euro bond buying program - which is
likely to run until at least this time next year. Eurozone GDP growth was 1.2%
year-on-year in the second quarter, a little weaker than expected, but
unemployment has begun to fall, with the most recent rate at 10.9%. Earlier
fears about price deflation have been avoided, with the core inflation rate
running at about 1.0% year-on-year.
Recent Chinese economic data has been weak, causing significant weakness
in global equity markets. Firstly, the survey of small-to-medium-sized
manufacturing firms saw the Purchasing Managers’ Index fall to 47.3, the
weakest level since the global financial crisis. Growth in industrial production
was also disappointing, slowing to just 6.0% year-on-year in July, down from
6.8% year-on-year in June. And, exports in July fell 8.3% compared with yearago levels. This softness prompted the People’s Bank of China to cut interest
rates and bank reserve requirements again. The Bank also adjusted the
exchange rate setting regime allowing the Chinese Yuan to decline by 1.9%,
the largest single day move in 20 years.
What about the Australian economy?
Australian economic growth in the second quarter was surprisingly weak, with
quarterly growth of just 0.2%, or 2.0% year-on-year. Also disappointing for
economists was the surprise fall in July’s retail sales, which fell by 0.1% while
June’s figures were revised down from 0.7% to 0.6%. However, other
measures of economic activity such as building approvals and employment,
have been reasonably good. There is also evidence that the non-mining parts
of the economy are picking up, helped by low interest rates and a weaker
currency. At the August board meeting, the Reserve Bank of Australia kept
interest rates unchanged and we believe it has finished cutting interest rates
for this business cycle. We expect the next move will be a rate rise in late
2016.
So, how did global and local financial markets perform in August?
Global equities lost 6.6% in local currency terms, and Australian shares fell
7.8% in August amid concerns about China and potential interest rate rises in
the US. Government bond yields in the US, UK and Germany were higher in
August, leading to a small decline in international bond indices, however,
bond yields in Australia fell and the local bond index rose 0.6%. On currency
markets, the US Dollar was weaker against the Euro and Yen, but
strengthened against the British Pound. The Australian Dollar continued to fall
against the US Dollar, down from 73.44 US cents at the start of the month, to
70.90 at month-end.
Asset Class Returns
August 2015
0.6%
0.2%
-0.1%
-2.2%
-6.6%
-7.8%
-6.5%
Bloomberg Australia
Composite Bond Index
Bloomberg Australia
Bank Bill Index
Barclays Global Aggregate
Bond Index ($A Hedged)
HFRX Global Hedge Fund
Index (USD return)
MSCI World Equity
Index (Local)
S&P/ASX 200 Australian
Equity Index
MSCI Emerging Markets
Equity Index (Local)
Source: Thomson Reuters Datastream
Are there any changes to our investment positioning this month?
Our asset allocation weightings are unchanged this month. We are neutral in
cash and property, underweight fixed income and Australian shares and
overweight in hedge funds.
We are still recommending a neutral holding in international equities, with a
preference for unhedged currency exposure.
That’s it for this month’s update. I look forward to talking to you next month.
Thank you very much for watching. 