Lonsec Market Commentary – January 2020
Following a very strong performance in 2019, the Australian equity market started 2020 in the same manner.
It’s possible that markets were factoring in some optimism on economic growth and earnings, although there is scant evidence of what the RBA Governor, Philip Lowe, described as a “gentle turning point” in the economy.
Highlighting the precariousness of markets was the volatility caused by the outbreak of the Coronavirus, which saw shares decline in late January and early February.
Over January, the S&P/ASX 200 Index returned 5.0%, led by large cap shares. The Health Care sector (+12.0%) continued its remarkable run, building to a rolling 12-month return of 54.8%.
(Lonsec, January 2020)
Lonsec Market Commentary – October 2019
Following relatively strong performance in the September quarter, the outlook appears mixed across most sectors. Australian shares were in the red in October, dragged down by the Information Technology (-3.95) and Financials (-2.8%) sectors.
Optimism among investors is being driven by monetary stimulus, signs of a recovery in the housing market, and a soft Australian dollar, which boosts earnings from foreign operators.
Working in the opposite direction is sluggish wages growth, relatively weak building and construction activity, and an uncertain global outlook.
(Lonsec October 2019.)
Lonsec Market Commentary – September 2019
The Australian economy has not suffered a recession (defined as two consecutive quarters of negative economic growth) for almost 28 years, yet for many conditions will appear stagnant.
With ‘full employment’ thought to be closer to 4.5%, it is difficult to see wages growth picking up much from current levels, particularly if the cyclical weakness in employment, as suggested by job ads data and business surveys, comes like to fruition. From a monetary policy perspective, the likelihood of a 0.50% official cash rate by early 2020 is quite high. The June quarter data shows that core inflation is running at 1.4% and the RBA does not see it reaching 2.0% until 2021.
(Lonsec September 2019; Issue date 10/10/2019)
Lonsec Market Commentary – August 2019
Australia’s GDP growth for the June quarter recorded only 1.4% year-on-year, the worst result since the GFC.
While in line with expectations, the result highlights the challenging environment on the spending side of the economy, with state final demand (a broad measure of spending) recording zero quarterly growth in NSW.
The renewed bout of risk aversion through August and September reflected the escalation in the US-China trade and technology war, along with evidence of further slowing in the global economy. An inversion of the yield curve rattled markets, giving rise to the debate about the timing of the next recession and whether the US Fed was doing enough to fight the slowdown.
(Lonsec August 2019, Issue date: 17-09-2019)
Lonsec Market Commentary – July 2019
The minutes from the RBA’s July meeting noted that low wages growth and spare capacity in the labour market meant there was room for the bank to cut rates. The underemployment rate in May was 8.6%, barely below the level seen in 2014 when the unemployment rate was more than 1.0% higher at 6.5%. The participation rate is now at a record 66.0%, up from 64.5% in 2014.
Markets enjoyed a short-lived reprieve from the US-China trade conflict in July, but economic data points to a further slowing in the global economy. The US Federal Reserve’s recent rate cut appears justified given the re-emergence of trade tensions, with the US administration threatening 10% tariffs on the remaining $300 billion of Chinese goods.
(Lonsec July 2019, Issue date 13-08-2019)