Market Wrap October 2019

06/11/2019
Posted in Wealth
06/11/2019 Level One

Markets

  • Market Performance – The ASX200 fell -0.4% in October.
  • Sector Performance – The top performing sector for October was the Healthcare Sector returning 7.6% and the worst performing sector was the IT Sector coming in at -3.9%.
  • Banks – All big 4 banks fell heavily during the month of October, CBA -2.7%, NAB -3.7%, Westpac -4.8% and ANZ -6.2%.
  • Global – The S&P 500 rose 2.2% in October. The Shanghai Composite Index also rose 0.82%.

 

Property

  • House Prices – National housing prices rose strongly, up 1.2% in October, the fastest since 2015. Sydney was up 1.7% and Melbourne was up 2.3%. The national average decline was  -2.3% over the past twelve months.
  • Auctions – The last week of October saw auction volumes reach their highest level this calendar year, rising to 2,622 properties nationally. The auction clearance rate rose to 75.1%.
  • Rental Yields – Sydney recorded the lowest rental yields at 3.2% and the highest were in Darwin at 5.8% over the past 3 months. When expenses are deducted from this, the real yield is much lower.
  • Residential Approvals – September Residential Building Approvals were higher at 168,000 compared to August at 154,000. This still represents a 19% decline from a year ago.

 

Economy

  • Inflation – CPI still low at 0.5% for the September third quarter and 1.7% on an annual basis.
  • Interest Rates – The RBA cut interest rates to 0.75%. UBS expect the RBA to further cut rates by another 0.25% in December.
  • Bond Yield – The Australian 10-year Government bond yield was lifted during the month of October to 1.15%.
  • Consumer Confidence Index – According to the Westpac Melbourne Institute the Consumer Confidence Index has dropped -5.5% over October.
  • Employment – Employment increased by 14,700 jobs in September. The unemployment rate increased to 5.2%. The participation rate fell slightly to 66.1% but maintaining a historically high level. Employment growth remained unchanged at 2.5% on an annual basis.
  • Exchange Rates – The Australian Dollar rose against the US Dollar to $0.689.
  • US – US jobs growth increased by 136,000 in September. US employment growth has slowed from last years’ pace. The unemployment rate declined to 3.5%. The Federal Reserve cut interest rates by 0.25% to 1.5% for a third consecutive meeting this calendar year.
  • PMI – The Manufacturing Purchasing Managers’ Index was slightly higher at 48.3 in October compared with 47.8 in September. Although indicating towards expansion, this is still below the required reading of 50.

 

Comment

IPO’s Scrapped

With equity markets at 12 year highs here and in the US, we are seeing more Initial Public Offerings (IPO’s) failing to proceed.

Local finance company Latitude’s $3.2 billion float was scrapped after the initial asking price went from $2.20 to $2.60 and then to $1.78 on the day the float was to proceed.

Nervous investors were spooked by the high valuation and pulled the pin scuttling the IPO.

In the US, the We Company (We Work’s parent), was also due for an IPO in recent months. Having been valued at US $47 Billion earlier in the year when Softbank invested in the start-up the IPO was not supported by investors who were having difficulty supporting the company at a US $10 billion valuation.

Also, in the US Uber Technologies and Lyft which did go public with an IPO earlier in the year, have had their share prices slashed as investors became concerned with rising losses.

These issues all suggest we are in the late stages of a bull market but with low interest rates around the globe, no one knows how much further the markets will run.

Did You Know:

In 2019, Australia hosted 229,136 Chinese students who were studying here with 121,723 from India.

The CFMEU backed hot weather policy has been rolled out in Queensland whereby construction workers stop work when the temperatures hit 28°C and the humidity is 75%.

It was reported in The Australian that a traffic controller working on Brisbane’s Queen’s Wharf project will earn approximately $194,000 if they work 10 hours overtime a week plus allowances that can be up to $20,000 per annum. Workers are also entitled to 10 days paid family violence leave, 26 rostered days off plus 12% superannuation.

A few years ago, a South African firm bought local retailer David Jones. Over the past 2 years, they have booked losses of $1.2 billion. The company’s CEO was quoted as saying in relation to the acquisition “we paid too much”.

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

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