Market and Economic Update: Australian stimulus reducing pressure on cutting interest rates - Raiz Invest

Raiz market and economic update

28/01/20

From George Lucas, Raiz CEO 

 

Global activity data improves

In positive recent news, flash Purchasing Managers Indexes (PMIs) for advanced economies in January showed further evidence of global economic stability, but not a strong pick-up in growth.

The PMIs are consistent with indications from several forward-looking global economic indicators over the past couple of months, while more timely leading indicators of global growth suggest that a slight turnaround in global trade is just around the corner.

 

ECB keeps policy on hold

Turning to the Eurozone, the European Central Bank (ECB) left policy settings unchanged at its policy meeting on Thursday as was widely expected, committing to sticking to its existing tools.

On the same day, the ECB officially launched its strategic review of its inflation goal and tools, with ECB president Christine Lagarde providing little new information about what the review will cover. Even so, I suspect that persistently sluggish Eurozone growth will keep inflation below the ECB’s current target of just under 2 per cent, prompting it to loosen policy later in this year.

Across in the UK, the Withdrawal Agreement Bill, which will take the UK out of the European Union (EU) on 31 January, passed all its stages in parliament and has been given royal assent. After the bill becomes law, the European Parliament must ratify it, which will set the stage for Brexit to occur.

 

Australia’s unemployment rate nudges lower

In Australia, the jobless rate fell to a nine-month low of 5.1 per cent in December, with the improvement driven by the creation of almost 29,000 part-time jobs across the month.

The fall in the unemployment rate shows monetary and fiscal stimulus are starting to work and is reducing pressure on the Reserve Bank of Australia (RBA) to cut interest rates. However, it will be strength or weakness in the Australian- US dollar cross that will dictate what the RBA does this year.

Elsewhere in the region, Indonesia’s central bank, Bank Indonesia, left interest rates on hold at 5.00 per cent, but kept the door open to further cuts. With the Indonesian economy struggling, inflation low and the rupiah appreciating against the US dollar, further easing is likely over coming months.

 

Coronavirus rattles global markets

The coronavirus has been dominating global headlines and there was some weakness in global stock markets, reportedly triggered by fears about the spread of the virus in China, especially in the city of Wuhan. There are now cases reported outside of China, including in Australia.

History suggests such events rarely have long-lasting and widespread effects on equities. Indeed, it is worth remembering that since the SARS outbreak, which was first reported in Asia in 2003, there have been many epidemics and pandemics which have made little discernible difference to global financial markets, despite impacting far more people than SARS.

For instance, outbreaks of diseases like avian flu, swine flu, MERS and zika failed to generate the same kind of panic as SARS. This is perhaps in part because of the initial secrecy that surrounded the SARS outbreak.

Even so, the coronavirus outbreak clearly represents a test for global equity markets right now, despite the recent strength in equities making it tempting to think that the rally can’t end.

 


 

Important Note: The information on this website is provided for the use of licensed financial advisers only. The information is general advice and does not take into account any person’s particular investment objectives, financial situation or investment needs. If you are an investor, you should consult your licensed adviser before acting on any information contained in this website.

Investors only: The information in this Document is confidential it must not be reproduced, distributed or disclosed to any other person unless it is part of their statement of advice. The information may be based on assumptions or market conditions and may change without notice. This may impact the accuracy of the information. In no circumstances is the information in this Document to be used by, or presented to, a person for the purposes of making a decision about a financial product or class of products.

General advice warning: The information contained in this Document is general information only. It has been prepared without taking account any potential investors’ financial situation, objectives or needs and the appropriateness of this information needs to be considered in that context. No responsibility or liability is accepted by Instreet or any third party who has contributed to this Document for any of the information contained herein or for any action taken by you or any of your officers, employees, agents or associates.

Bitnami