Market and Economic Update: Optimism lifted global equities
12/11/19
From George Lucas, Raiz CEO
US-China trade talks edge ahead
This week global equities lifted on optimism about a trade deal between the US and China but the positivity was dented later in the week due to negative comments by US President Donald Trump. In a blow to investors on Friday regarding the ongoing trade stoush, President Trump said the US has yet to agree to wiping tariffs, contradicting a statement from China’s Commerce Ministry.
However, regardless of whether a deal on tariffs is reached, a few points are worth making. To start with, a lot of good news seems to be already priced in judging by the market reaction since a deal was agreed in principle. MSCI’s ACWI Index of global equities has risen by over 5 per cent since 11 October and the renminbi is now back to 7 against the US dollar — the level at which it was trading prior to the latest escalation in trade tensions in early August.
What’s more, even if a “mini-deal” is finalised, it’s unlikely that tensions surrounding trade are unlikely to go away completely given some of the more controversial issues, like currency manipulation, are yet to be addressed. China’s rapid emergence as an economic superpower makes it a threat to the US and, in our view, the tension between the two countries is here to stay.
Australian retail sales slump
At home, ABS data showed retail sales slipped 0.1 per cent in inflation-adjusted terms in the September quarter, suggesting that consumption growth remained weak. Looking ahead, with most of the federal government’s tax refunds already paid, the outlook for Q4 also looks subdued.
Meanwhile, the Reserve Bank of Australia reiterated its view that the local economy had reached a turning point when it left rates unchanged at its monthly meeting on Tuesday. However, in our view, the RBA’s forecasts for GDP growth and the labour market remain too optimistic, and we expect it to cut rates further. Indeed, the market is now talking about quantitative easing in 2020.
The central bank also signalled that it expects inflation to remain below its 2-3 per cent target band for the foreseeable future. Core inflation has been under 2 per cent for four years and is a major driver for the RBA cutting rates three times since May.
Fortunately for Australia, the trade surplus grew in September, with date released this week showing exporters shipping out a record $43.2 billion worth of goods and services in the month. However, net trade overall probably didn’t boost the economy in Q3.
Indonesia Q3 GDP growth steady at 5.02%
Turning to Asia, GDP growth in Indonesia has been stable at around 5 per cent over the past five years, and it was no surprise that it recorded another quarter of growth at this rate in Q3. Despite the solid growth figures, some analysts have cast doubt over the reliability of the data.
In Malaysia, the Malaysian central bank — Negara Malaysia — left its policy rate unchanged at 3.00 per cent. With growth in Malaysia likely to slow sharply over the next few quarters and inflation tipped to remain subdued, I think the central bank will continue to ease policy in 2020.
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