Investment Update – April 2019

Share markets have rebounded nicely in the first quarter of 2019, after major declines late in 2018 due to US Federal Reserve tightening, US-China trade tensions, and fears of a slowing global economy. In the US, the S&P 500 rose almost 13% in the quarter, and at home our ASX 200 climbed almost 11%.

A large contributor to this turnaround was the US Federal Reserve’s announcement early this year that they will be patient with increasing rates, essentially reassuring investors that excessive tightening would not be likely, and that they would continue to support a healthy US economy. The Fed went further in March by leaving rates unchanged, and dialling back the chances of further rate rises this year, citing continuing low inflation and slowing economic growth. While growth appears to be slowing, the unemployment rate is also falling, so the underlying economic fundamentals are quite reasonable.

Here in Australia, property prices continue to decrease in the major cities, which appears to be having some flow-on effect on retail sales. A number of economists are predicting a further reduction in property prices in the coming months. This is a contributor to the Reserve Bank of Australia’s interest rate outlook, where the next likely move is expected to be a cut rather than an increase. Australian 10-year bond yields have fallen as a result.

Finally, the Federal Election has been called for May 18, with the Government releasing their Budget a month early, full of tax cuts and infrastructure spending. Labour’s policies on negative gearing and franking credits both carry implications for investors and the property and share markets overall, so it will be very interesting to watch what unfolds.

Economic Outlook
The markets have welcomed the comments and actions by the US Federal Reserve, which suggests continued, steady growth can be maintained for some time with low unemployment and, so far, little sign of inflation. So while many uncertainties still remain, the global outlook is still quite good.

In Australia, the cooling property market is potentially countered with reduced interest rates, so there is cause to be positive on the domestic outlook as well.

Economic indicators –  5 April 2019 1 year % excluding dividends
Australia: ASX 200 6.8%
Japan: Topix -5.7%
China: CSI 300 5.4%
UK: FTSE 100 3.4%
US: S&P 500 8.6%
Australia: Rates at 5 April 2019  
AUD/USD 0.70
Official interest rates 1.50%
Aus 10-year bond yield 1.9%
 

 


Published : 15 Apr 2019