– Following on from November, Australian shares continued its rally with broad gains (+3%) across the sectors on the back of stronger iron ore and oil prices, as well as robust retail sales through the holiday season.
– Additionally, Australian economic activity was mixed but primarily positive. While GDP declined in the September quarter (-0.5%), December saw this countered with solid job gains and consumer spending.
– In the US, shares continued to surge (+1.8%) following President-elect Donald Trump’s promises of an ambitious economic stimulus package, including corporate tax cuts and infrastructure spending.
– The US economy remained solid with ongoing strong consumer spending and job gains, which lead to the US Federal Reserve (Fed) once again raising interest rates by 0.25%. This had minimal effect on US share markets as this had largely already been priced into the market, in addition to the Fed providing guidance that further raises would be ‘gradual’.
– Globally, European Shares saw unexpectedly large gains through December, with investor sentiment rising from positive business and consumer spending and the European Central Bank’s continued stimulus program.
– Positive economic data and a weaker Yen currency provided a strong catalyst for shares in Japan to surge higher.
– The Australian Bond market finally showed a period of stabilisation, with yields increasing only two basis points after sharp increases in previous months. The mixed economic data and assurances from credit agencies in maintaining Australia’s ‘AAA’ credit rating provided the stabilising catalyst.
– Globally, bond yields were mixed. US yields rose given the prospect of larger budget deficits if Trump implement his stimulus proposals, and on the back of the Fed raising their forecast for increased rate hikes in 2017.
– A stronger USD caused the Australian Dollar to weaken through December, falling -3.18%. The stronger USD came over speculation of up to 3 more rate hikes by the Fed in 2017.
– In commodity markets, oil was the biggest gainer after it surged 12.6% due to building anticipation of the Organization of the Petroleum Exporting Countries’ (OPEC) imposing production cut. Iron ore continued to rise through December due to increasing Chinese demand and steel prices.
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