11 December 2015
Data/Event
Movement
LATEST
PREVIOUS
China – CPI (MoM)(Nov)
0.0%
-0.3%
Australia – unemployment rate
5.8%
5.9%
US – retail sales
0.2%
0.1%
Financial markets
Friday
11 December
2015
Friday
4 December
2015
Weekly
change
4 December
2014
12-month
change
S&P/ASX 200 Index
5,029
5,152
-2.4%
5,231
-3.9%
S&P/ASX 200 Property Trusts
1,267
1,262
+0.4%
1,177
+7.7%
US S&P 500
2,012
2,092
-3.8%
2,035
-1.1%
337
350
-3.7%
319
+5.6%
UK FTSE 100
5,953
6,238
-4.6%
6,462
-7.9%
Japan TOPIX
1,550
1,574
-1.6%
1,397
+10.9%
CHINA - CSI 300
3,608
3,678
-1.9%
3,183
+13.4%
MSCI (ex-Aust/in LC)
1,267
1,315
-3.6%
1,274
-0.5%
Australian 90-day bank bill yield
2.34%
2.30%
4 bps
2.75%
-41 bps
Australian 10-year bond yield
2.85%
2.95%
-10 bps
2.86%
-1 bps
US 10-year bond yield
2.13%
2.27%
-14 bps
2.16%
-4 bps
Oil – West Texas Crude
35.62
39.97
-10.9%
59.95
-40.6%
A$ in US cents
0.7189
0.7339
-2.0%
0.8272
-13.1%
A$ trade-weighted index (TWI)
62.20
62.60
-0.6%
67.00
-7.2%
Indicator
Dow Jones Eurostoxx
Major upcoming global economic releases and events
Date
Data/Event
Previous
Forecast
11 Dec
Australia – House Price Index (YoY)
9.8%
10.0%
16 Dec
US – FED Interest rate decision
0.25%
0.375%
16 Dec
US – Consumer Price Index (YoY) (Nov)
0.2%
0.5%
Investment markets and key developments over the past week
Global shares fell sharply last week by circa -3.6 % given anxiety over the imminent American interest rate rise, turbulence in
the US high yield market, Chinese slowdown concerns and weak commodity prices.
Solid American economic data over the past week supports the US central bank raising interest rates on December 16.
America recorded healthy November job gains and retail sales.
China's economic activity data for November actually shows encouraging stabilisation signs after concerns that the
slowdown was intensifying. So China is progressively gliding down to a more modest 6% economic growth pace in 2016 compared
to circa 7% pace of 2015.
However, given China’s industrial production slowdown and excess commodity supply, weak commodity prices continue to
weigh down Australian shares.
Major global economic events and implications
American retail sales recorded solid gains in November. This suggests that US consumer spending is doing reasonably well given
the robust job gains and lower energy prices in 2015. Accordingly, the American consumer appears capable of absorbing gradual
interest rates rises over coming months.
Chinese industrial production rebounded to a 6.2% annual pace, while retail spending accelerated to an 11.2% pace. China's inflation
is mild, at 1.5%. With such mild price pressures, there is considerable flexibility for China's central bank to cut interest rates further to
support growth
Japan’s economic activity was revised up, such that the recession in the September quarter has disappeared. Japan’s economy
expanded by 0.3%, leaving annual growth at a more respectable 1.6%.
Australian economic events and implications
Australia’s jobs growth surged in November (+71,400 extra jobs) after a robust October performance (+56,100). Australia’s
unemployment rate fell to 5.8%, which is the lowest jobless rate since March 2014. While the accuracy of this jobs data is questionable,
the case for another Reserve Bank of Australia (RBA) interest rate cut in early 2016 has been set back.
The NAB Business survey for November shows a lift in confidence and strong responses on conditions.
Consumer sentiment slipped marginally in November but is still consistent with solid spending prospects.
What to watch over the next week?
In the US, all eyes will be on the Federal Reserve (FED) decision on December 16, on whether US interest rates are to rise
from their current 0% to 0.25% target range. Given that the FED Chair, Dr Janet Yellen, emphasised on December 3rd that the
“more prudent strategy” is “gradual” and “timely” US interest rate rises, then this likely December move is no major surprise.
Essentially the FED has ‘telegraphed its punch’ to financial markets. A strong US Dollar, low commodity prices and mild US wage
pressures suggest the FED is likely to only slowly raise US interest rates in 2016.
Australia’s Federal Government releases their mid-year budget update. This is known as the MYEFO which could also stand for
“My Yearning for the Eventual Fiscal Oasis” of a Federal Budget surplus.
Treasurer Scott Morrison is expected to announce a larger budget deficit for this financial year, 2015-2016 (our forecast is a A$ -38
billion deficit compared to May’s A$-35 billion), as well as softer economic growth (2.5% is likely rather than May’s 2.75%).
Australia also sees the release of the House Price Index for the September quarter which is expected to show annual gains
running at a 10% pace. Yet this is largely due to the Sydney & Melbourne boom. Recent lower auction clearances suggest that both
Sydney & Melbourne housing markets are now cooling.
Japan’s central bank also weighs up monetary policy on Friday. There is considerable pressure for further stimulus given the “stopstart” economic recovery in Japan over recent years.
Europe’s November CPI inflation on Wednesday is important. The current near 0% inflation results are well below the European
Central Bank (ECB) 2% target. So the ECB will be considering further stimulus measures in 2016 given the current slow recovery with
minimal price pressures.
Outlook for markets
Global shares are likely to feature significant volatility in coming to terms with America’s central bank raising interest rates, China’s
growth slowdown, emerging-market weakness and falling commodity prices.
However global shares should settle down in early 2016 with a realisation that the asset class is cheap relative to sovereign bonds,
while global monetary conditions will remain very easy even with the US central bank raising interest rates.
Australian shares have disappointed in 2015 as falling commodity prices, soft domestic economic growth and increased regulatory
scrutiny for Australian banks has weighed on sentiment. However these risks should abate in 2016 with the Australian ASX 200 likely
to be above 5500 by mid-year.
Low Government bond yields currently suggest that returns over the medium term will be very subdued.
Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds
Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation,
any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account
of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this
document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.