Market Wrap August 2019

06/09/2019
Posted in Wealth
06/09/2019 Level One

Markets

  • Market Performance – The ASX200 experienced its worse month since December, falling  -2.4% in August affected by US and China Trade war escalation and company earnings results.
  • Sector Performance – The top performing sector for July was the Health Care Sector returning 3.6% and the worst performing sector was the Materials Sector coming in at -7.5%.
  • Banks – All big 4 banks fell heavily during the month of August, Westpac -1.5%, CBA -3.9%, NAB -4.0% and ANZ -4.2%.
  • Global – The S&P 500 fell -1.6% in August. The Shanghai Composite Index fell -1.58%.

 

Property

  • House Prices – In August national housing prices rose 0.8%. Sydney was up 1.6% and Melbourne was up 1.4%. The national average decline was -6.4% over the past twelve months. Sydney and Melbourne prices are down -6.9% and -6.2% for the past year respectively but showing recovery.
  • Home Sales – Home sales have collapsed. The number of home sales in the last 12 months has fallen to near the lowest in 23 years.
  • Rental Yields – Sydney recorded the lowest rental yields at 3.4% and the highest were in Darwin at 5.9% remaining unchanged over the past 3 months. When expenses are deducted from this, the real yield is much lower.
  • Residential Approvals – Residential Building Approvals extended its 6-year low, of 155,000 which represents a decline of -28.5% on an annualised basis.

 

Economy

  • Gross Domestic Product – GDP growth for the year to June 30 was a weak 1.4%. This is the lowest since the GFC over a decade ago.
  • Interest Rates – No further interest rate cuts were announced in August. UBS expect the RBA to further cut rates in both October 2019 and February 2020.
  • Bond Yield – The Australian 10-year Government bond yield fell below 1.0% during the month of August for the first time on record to 0.89%.
  • Consumer Confidence Index – According to the Westpac Melbourne Institute the Consumer Confidence Index has bounced up 3.6% following a hold on interest rate cuts.
  • Current Account – Australia has recorded its first current account surplus in 44 years following strong growth in commodity shipments and prices.
  • Commodities – Gold prices have surged to a new high of $2,320 per ounce on the back of lower yields and trade uncertainty.
  • Employment – Employment increased by 41,100 jobs in July. The unemployment rate remained unchanged at 5.2% and the participation rate ticked up slightly to 66.1%. Employment growth remained strong at 2.6% on an annual basis.
  • Exchange Rates –The Australian Dollar has fallen against the US Dollar to a 10-year low to $0.674, falling 1.6c.
  • US – US jobs growth increased by 164,000 in July. The unemployment rate remained unchanged at 3.7%.

 

Comment

Interest Rates are falling globally, the US Federal Government cut interest rates in July by 0.25% to 2.25% and are expected to cut the interest rate again in September by another 0.25%.

German 10-year Government bonds are currently yielding a negative 0.71%, while Swiss 50-year Government bonds are also yielding negative 0.414%. Trade tariffs imposed between China and the US is spreading economic, market and political instability across the globe.

On the 5th of August, Chinese authorities allowed their domestic currency to fall against the US dollar. 1 US Dollar fell to below 7 Chinese Yuan for the first time since the Global Financial Crisis. This appears to be a direct retaliation against the US as both countries battle for economic superiority.

In Australia, the RBA cut interest rates twice in June and July by 0.25% to a record low of 1.00% with 2 further interest rate cuts expected in the next 6 months. Australia’s current yield curve is flat at around 1.00% for the next 20 years. This reinforces the concept that interest rates in Australia will be lower for longer, perhaps a lot, lot longer.

This will impact business confidence, asset prices, inflation, exchange rates, wages and most economic norms we have accepted over the past decades.\

Sources: UBS, Westpac, ABS, US BLS, CoreLogic, BIS Oxford Economics

 

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