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3 Minute Economic Summary – July 2016

Article By Adam Hurwood | | Financial Planning
• Share markets had a remarkably strong month, with the ASX 200 up 6% as investors anticipated a major global policy response to address risks from Brexit. Australian shares are now 5% higher for the year, broadly in line with most other developed markets. The best performing sectors were utilities, consumer discretionary and consumer staples. In contrast, energy and IT were the biggest laggards.

• The RBA cut the official cash rates in August to 1.50%, on the back of the subdued June quarter inflation data. The Inflation rate stayed at 1.5% through July and therefore remains under the RBA’s 2–3% target band.

• The cut to official cash rates in Australian lead to a fall in bond yields, with Two-year bond and 10-year bonds yields falling 7 and 11 basis points to 1.47% and 1.83% respectively. Internationally, monetary easing from Central Banks in combination with post-Brexit sentiment caused further increases to negative bond yields, with Switzerland Government Bonds trading at negative rates for the first time in history.

• Globally, share markets were up 2% in July in Australian dollar terms, following a strong rally post Brexit after global central banks voiced that they will continue to act as a backstop. Better-than forecast economic data and US corporate earnings also helped lift stocks. Japan and emerging markets were the biggest outperformers for the month. In China, economic growth data released in June was broadly ahead of expectations, suggesting growth stabilised in the second quarter of 2016 with GDP increase of 6.7% over the year.

• The ongoing themes of a low interest rate environment, and strong, reliable cash flows continue for the Listed Property sector as the ASX 200 Property Trusts moved higher 5.4% over the month.

• After almost doubling from a 12 year low in February, crude oil prices fell almost 15% from the start of July on the back of increased inventory levels worldwide. Precious metals posted strong gains over July, largely influenced by the Brexit vote.

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