This week the focus is on the US where yields on bonds are rising (so the value of bonds is falling) and equity markets are not performing that well. The direction of the US equity and bond markets is leading the global market down even though Australia’s equity market did not fall as much in September as the S&P500.
The word “portfolio” is used regularly by financial media. But financial media has a way of making things sound more complicated than they are 😕 If you haven’t had a financial portfolio, or don’t yet know much about them, there is no need to be intimidated by them! A portfolio is just a term used to describe a collection of items or works. If it was an artist, a portfolio would be a collection of the artist’s work.
The word “risk” often gets a bad reputation. To some people risk is seen as a bad word because they associate it only to the negative connotations of down markets or loss. In business it is necessary to understand the risks so you can try to mitigate them.
In Japan, the resignation of Japan’s Prime Minister Yoshihide Suga at the start of September appears to have raised investors’ hopes that the country might see a renewed focus on the economic policies of his predecessor Shinzo Abe, such as further fiscal stimulus and structural reform.
Just like you can own a fraction of an ETF in your Raiz portfolio or Raiz Invest Super portfolio, you can own pieces of properties via Superestate, the super fund recently acquired by Raiz that looks to democratise investing in property.
The “S” word: Stagflation. It’s a term being increasingly used in financial media. Don’t worry, it’s not a rude “S” word 😅 It suggests that inflation globally could persist for some time, certainly longer than the US Federal Reserve would care to admit… But it is also describing a period of low global economic growth.
While it wasn’t the most eventful week overall, there were some interesting developments in the US when the US Labor Department reported August payroll data.
The data showed that nonfarm payrolls lifted by 235,000 jobs last month, the smallest rise since January, as hiring in the hospitality and leisure sector stagnated amid another surge in COVID-19 infections, which dampened demand at restaurants and hotels across the country.
For the US Federal Reserve, the weak payrolls data complicates the outlook and raises questions about whether the central bank will start tapering asset purchase before the end of the year.
US Fed Chair Jerome Powell implied at a speech at the Jackson Hole conference last week that the central bank wants to commence tapering before the end of 2021, but the plan is thought to be conditional on continued gains in the jobs market.
The subdued August payroll data therefore complicates the picture for the US Fed and may mean that any announcement of tapering will now be pushed back, potentially into early 2022.
What was unexpectedly strong in the jobs report was wage growth — a sign of growing price pressure in the US. As a result, we saw a muted reaction from equity markets as the data did nothing to ease the fears around rising inflation in the US. As we said this job report complicates things for the US Fed.
China services activity falls into contraction
In China, the Caixin/Markit services Purchasing Managers’ Index (PMI) fell from 54.9 to 46.7 last month, which apart from last year’s lockdown was the weakest reading on record. The 50-point line separates growth from contraction on a month-by-month basis in China’s services sector.
The slump in the August reading adds to signs from the official non-manufacturing PMI that COVID-19 disruptions have weighed on recent services activity in the world’s second largest economy.
Looking ahead, the weakness in services should reverse in September now that most recent COVID restrictions in China have been eased. Still, coronavirus disruption aside, China’s economy looks to be coming back to earth following a period of above-trend output.
Australia’s economy slows in June quarter
In Australia, we had official figures released showing gross domestic product increased 0.7 per cent in the June quarter, down from 1.9 per cent in the three months to March.
The 0.7 per cent rise in Q2 was broadly in line with the Reserve Bank of Australia’s expectations and we suspect that as a result it will likely press ahead with tapering its asset purchases this month.
However, looking ahead, we expect a 1.5 per cent quarter-on-quarter decline in output in Q3 as the recent spate of COVID-19 lockdowns, especially in NSW and Victoria, weighs heavily on activity.
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