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3 Minute Economic Summary – August 2016

Article By Adam Hurwood | | Financial Planning

• After an extended period of market volatility, August provided investors some calm as market movements remained minimal.
• In Australia, the RBA announced a cut to the official cash rates from 1.75% to 1.50%. With economic data suggesting a moderating global economy (in particular China), a low inflation environment, subdued growth in labour costs and a strong Australian Dollar; these provided the catalyst for the RBA to cut rates.
• Meanwhile, Australian Shares fell 2.3% over the month, due to a positive but below market expectation profit announcement season and investors pricing in a potential interest rate increase by the US Federal Reserve (Fed), after they hinted at raising rates.
• In the US, Fed Chair Janet Yellen noted the case for a rate increase had strengthened due to a continued solid performance of the labour market, and inflation remaining in line with their target rate.
• In Asia, the Japanese government appears set to inject more stimulus into the economy due to continuing low inflation. In China, the economic growth continues to moderate as the stimulus packages injected into the economy are yet to take hold.
• In the UK, the fallout from Brexit has remained somewhat subdued, with the Bank of England announcing additional monetary stimulus to assist the country in the coming years to ease the transition.
• International shares remained mostly stable over August after strong gains the month before, and were up 1.3% overall.
• With the RBA dropping rates, the Australian 10 year bond yield followed suit and fell slightly, providing a capital increase to any existing long term bonds. In contrast, with the US Fed potentially looking at increasing rates, the US treasury bond prices fell.
• In the commodity market, Oil rose 7% on the back of the possibility of an agreement of production cuts by the Organisation of Petroleum Exporting Countries (OPEC). Furthermore, gold and other precious metals fell over the month due to the Fed hinting at raising rates. Iron ore also fell for a second month in a row, largely due to rising inventory levels and the rising US Dollar.

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