Key points

• Global economic growth rates and Australian investment earnings captured investors focus over the past month.
• In Australia, GDP (Gross Domestic Product) measurements were released for the June Quarter and were in line with expectations. Australia’s growth rate for the past 12 months has increased to 3.4% p.a. (which is now above our long-term average of approximately 3%). Further analysis of this data however shows that part of this increase has been financed with debt and a fall in household savings, with building and construction a key driver of growth during this period. However, this is unlikely to result in a sudden change to the Reserve Bank of Australia’s cash rate, as growth is not expected to accelerate above this level whilst inflation and wage/salary growth remains subdued.
• Whilst the RBA cash rate is unlikely to see a short-term change, a number of the major banks have started to increase home loan rates, in part due to the increased costs of sourcing funds from overseas. As a result, this may dampen some growth as consumers become more cautious/feel the impact of more expensive rates.
• For Australian share markets, the past number of weeks have also been dominated by company profit announcements. Overall results were positive pushing the overall market up; however looking ahead a number of companies forward outlooks were downbeat, and as a result saw significant falls in their share price.
• The US economy remains very strong with unemployment remaining at record lows. Consequently, the US Federal Reserve is anticipated to remain on course with its planned series of interest rates increases, with 1-2 more this year and a potential 1-2 next year.
• In Europe, growth has remained at a slower rate compared to the recovery experienced last year, the outlook remains positive but more subdued with stimulus measures likely to remain in place to help push the economy along. Political issues continue to see volatility remain within markets over the short term.
• Asian and Emerging Markets continued to be impacted negatively over August and September. With US rates increasing, Emerging markets have started to feel the impact of foreign investors selling down stocks and withdrawing their money on the expectation of earning a solid and less risky return with US government bonds. This has also been coupled with Emerging Asian countries also feeling the ongoing impact the US trade war with China as investors speculate as to what the medium-long-term effect will be.  There remains the likelihood that Trump will continue with additional tariffs on more Chinese goods, further adding to Asian market volatility.

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