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Markets have continued to be volatile over the last few months, however unemployment rates are continuing to fall globally and we are experiencing synchronised growth across most economies.
Fear of trade wars between the US and China is causing tension in the markets globally. Inflation is also a concern, with many investors wary of the potential for tariffs to quickly impact inflation figures and trigger unwanted economic policy responses.
In the US, the Federal Reserve increased rates again in September 2018, adding more downward pressure to the Australian Dollar. There is a high likelihood of the Fed increasing again by the end of this year. Even though mega cap stocks such as Facebook and Twitter missed expectations and their share prices have fallen, other tech stocks such as Apple and Amazon are leading the way on earnings growth.
Business optimism is weakening in the Eurozone due to trade and political uncertainty. The Bank of England also raised rates for the first time in 10 years, which is a sign of strength but also raises the concern of rate hikes being too high too soon.
The emerging markets sector has fallen significantly over 2018, mainly due to a stronger US Dollar and the impact on debt servicing (notably in Argentina and Turkey). In addition, weaker commodity prices have affected a number of emerging market economies.
Closer to home, the ASX 200 is getting some momentum with our unemployment rate continuing to fall. Property prices are continuing to decline in the major cities, with tighter bank lending conditions playing a major part. Potential declines in the Australian dollar could prove to be a boost for exports moving forward.
Following a reasonable period of global growth, we remain cautiously optimistic about the opportunities ahead. The factors that contributed to growth in recent times look set to continue, namely continued global growth, low inflation (excluding the US), and supportive monetary policy.
Volatility looks set to continue also, driven by trade and geopolitical concerns, inflation risks, and the possibility of higher interest rates restricting growth. The likelihood of global recession remains low, interest rates are generally favourable, and earnings growth in most economies looks positive.
|Economic indicators: Current at 28 September 2018||1 year % excluding dividends|
|Australia: ASX 200||9.5%|
|China: CSI 300||-10.0%|
|UK: FTSE 100||2.6%|
|US: S&P 500||16.1%|
|Australia: Current at 28 September 2018|
|Official interest rates||1.50%|
|Aus 10-year bond yield||2.67%|
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