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3 Minute Economic Summary – December 2017

Article By Adam Camac | | Financial Planning
  • The Australian share market continued its strong positive run, The S&P/ASX 200 Accumulation Index posted solid gains, rising 1.8% and finishing the calendar year 11.8% higher. The biggest sector gain over the month was in Resources which continued to barrel ahead, returning 7.2% in December and a hefty 25.9% for the year, buoyed by rising commodity prices.
  • GDP growth data was released for the September quarter. While quarterly growth of 0.6% fell slightly short of expectations, the annual pace of growth picked up to 2.8% which is just under our long-term average of 3%.
  • The unemployment rate remains steady 5.4%, but appears to be under downward pressure (as the jobs data release for the previous month showed over 60,000 new jobs were added, but this was not enough to shift the percentage down). Additionally, consumer confidence data now suggests the worst is behind us, increasing to the highest level in four years. The improvement was likely prompted by the belief that Australian interest rates would stay low and comments by the Prime Minister on the possibility of tax cuts.
  • The MSCI World index (excluding Australia) returned 1.1% in December following November’s 1.6% increase. Over the past 12 months, developed market global equities have returned 19.4% before taking into effect the impact of currency. Emerging markets posted a strong 2.6% in December and returned 31.0% in 2017. This strength largely reflected share market performance in Brazil (+26.8%) and India (+30.0%) while Russia returned a scant 1% for the year.
  • In the US, The S&P500 increased by 1.1% in December, with positive momentum continuing despite the US Federal Reserve increasing the Federal Reserve’s funds rate at its December meeting. The US market returned a stellar 21.8% in 2017.
  • As expected, US interest rates were raised by a further 0.25% (to a range of 1.25%-1.5%); the third hike of the year.
  • The economy may be further boosted by President Trump’s tax legislation overhaul which cleared Congress and was signed by the US President just prior to Christmas.
  • There were mixed signals on the US consumer front. Confidence dipped to a three-month low in November, although retail sales growth picked up in the same month following strong sales during the ‘Black Friday’ period.
  • In Continental Europe, the economy continues to recover steadily. Growth in the September quarter was the strongest since the first quarter of 2011, supported by improving conditions in Germany and Italy
  • Market-wise European shares again faltered in December, falling 1.0% after November’s 2.0% decline. The weak end to the year meant that 2017 returns were pared back but still managed a robust 13.4% return
  • There was little in December to surprise investors. The main drivers of bond yields – i.e. US tax reforms and the interest rate hike – were already largely priced in to markets. In Australia, there was a large move in 10-year government bond yields but this was mostly retracing back the fall in bonds yields last month.
  • The Listed property sector in Australia returned 0.2% in December and 5.7% in 2017. Aussie property has been buffeted by changing market conditions as investors assess the impact of Amazon’s entry into Australia and lacklustre retail spending. Global listed property continued recent strong performance, posting a 1.2% return following November’s 2.3% rise, and returning 9.5% over 12 months
  • The Australian dollar rose sharply in December to end the year at US$0.7804. The dollar’s recent rollercoaster has been largely due to commodity price volatility.

Compiled with BT Applied Research Monthly Commentary –December 2017 and CFS market Watch December 2017

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