Lonsec Market Commentary – August 2017
Australia has had GDP growth and continued to have improvement within the labour market. The economy appears well positioned despite wage weakness as the economy grew by 0.8% in June quarter and 1.8% over the year to date. The unemployment rate down from 5.7% to 5.6%.
The Reserve Bank of Australia (RBA) is placing emphasis on employment, indicating that labour market growth should result in improvements in wages over time. The main concern is maintaining a balance between stimulatory monetary policy and the medium-term risk of high and rising household debt.
An appreciating dollar over recent months, is likely to contribute to subdued price pressures and it seems like interest rates are to stay on hold for some time yet to come. The Reserve Bank left the cash rate on hold at 1.50% at its September meeting, where it has remained since the downward move in rates one year ago. In addition, low petrol prices have contributed to lower inflation, with prices at the pump down 15c/litre nationally since early June 2017.
Australia’s consumer sentiment struggling to stay positive. The Westpac Melbourne Institute Index of Consumer Sentiment fell 1.2% in August from 96.6 in July to 95.5. Households are feeling the squeeze, with concerns regarding interest rates and housing affordability. Changes to sentiment in August may be due to recent mortgage rate increases, as the major banks raised rates on interest only mortgages in late June.
In the United States, the S&P 500 gained 0.96% in AUD terms as the global equity markets are challenged with geopolitical tension originating from the Korean peninsula.
The MSCI Word Index gained 0.85% in AUD terms, which was significantly influenced by Asian markets.
‘The S&P/ASX 300 A-REIT Accumulation Index returned 1.51% in August after coming under pressure in July. Overall, there was solid reporting in regards to A-REITs, as there was a strong demand for quality real estate boosting asset values, NTAs and continued strength in Sydney and Melbourne office markets.
Global REITS were slightly lower for month of August. REITs have generally been held back by growth sectors such as offices, malls and hotels. Low volatility remains, although a structural fall in volatility could boost valuations and risk-adjusted returns.
China recorded GDP growth of 6.9% in Q2 2017, which was enough to ward off fears of a slowdown and satisfied officials that efforts to tighten lending have not been detrimental to the economy.
‘Commodities had a bumper month in August, driven higher in the wake of North Korea’s missile tests’.
(Ref: Lonsec August 2017, Issue Date: 08-09-2017)