Market Update: September 2019

There were jitters in equity markets in August but no quakes just yet as a brief inversion of the US yield curve triggered steep selling. This sentiment weighed heavily on Australian shares despite a generally positive earnings season, dropping 2.4% over the month with the Materials (-7.5%) and Energy (-5.6%) sectors hit the hardest. Below we summarise the key indices as at the end of August:

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Volatility has again returned to the share market, with the flow-on effects being a massive spike in gold prices as investors chased safe-haven assets. We believe that this volatility will be here to stay for some time and have been holding slightly larger allocations to cash in order to pounce at any buying opportunities.

After a year and a half of continuous monthly declines, Australian house prices have begun to flatten as interventions like interest rate cuts and relaxed lending rules lure buyers back to the market. It remains to be seen how the latest round of interest rate cuts will filter through to the housing market.

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Although housing prices in Melbourne and Sydney have bounced higher, all the signs are pointing to soft economic growth, which was confirmed with the June quarter GDP data. June quarter growth wasn’t as bad as feared, but it still showed that annual growth has slowed to just 1.4% year on year, its weakest since the GFC. What’s more, retail sales continued to fall in July and industry data showing softness in car sales into August raises questions about the impact of the tax and rate cuts – however, it might be a bit too early to tell yet. ANZ job data points to much slower jobs growth ahead, as does the huge disconnect between GDP growth of just 1.6% year on year and employment growth running at 2.4% year on year.

As if the RBA wasn’t already in an unenviable position, the rebound in property prices could present a problem for them, if they’re thinking of cutting rates even further to stimulate an economy that really needs a kick up the backside.

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