From George Lucas, Raiz CEO
Stocks slump on Trump impeachment talk
This week saw US markets react badly after it became clear that Democrats would seek to impeach US President Donald Trump. Impeachment calls grew louder after Trump confirmed he held back aid to Ukraine but denied this was to provoke an investigation of former vice president Joe Biden.
Trump’s woes were compounded by rumours that his administration may seek to ban Chinese companies listing on US stock exchanges — further increasing tensions between the US and China.
However, it’s our view that both history and the particulars of the current situation suggest that the issue will ultimately matter little for the stock market.
UK Supreme Court: suspending parliament was unlawful
Across the Atlantic, the UK Supreme Court ruled that Prime Minister Boris Johnson’s decision to suspend parliament was unlawful. Johnson, who has since faced calls to resign, said he “profoundly disagreed” with the ruling but would nonetheless respect it.
The court ruling reduces the likelihood of a no-deal Brexit, but a lack of consensus in the UK Parliament on what happens next means that, unless a Brexit deal is struck, uncertainty will remain.
Eurozone economy continues slowdown
Elsewhere in Europe, recent economic data shows that the eurozone economies continue to slow.
In particular, the eurozone Composite Flash PMI fell to a 75-month low of 50.4 in September, consistent with GDP roughly flat-lining at the end of the quarter.
A breakdown of the data shows that the contraction in Europe’s manufacturing sector deepened. Worryingly, there were also signs that the weakness in manufacturing is leaking into services.
US Market Composite rises in September
US data releases were more upbeat. For instance, there was a small rebound in the Markit composite PMI in September, driven by improvements in both the manufacturing and services components. However, the uptick still leaves the index pointing to a slowdown in GDP growth.
There was also a small rise in US personal spending in August, suggesting that third-quarter consumption growth was around 2.6 per cent annualised — weaker than previously anticipated.
Additionally, US core durable goods orders last month rebounded and beat expectations, but even so business equipment investment seems to have stagnated in Q3. The upshot is that US GDP growth is expected to have slowed to 1.5 per cent annualised in the third quarter.
RBA tipped to slash rates
Locally, the Reserve Bank of Australia is expected to cut its policy rate to 0.75 per cent when it meets on Tuesday, following up its back-to-back rate cuts in June and July.
Looking ahead, August retail sales should give a better indication of how households are using the windfall of the Morrison government’s recent tax cut, with a strong 0.5 per cent month-on-month pick-up expected.
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