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3 Minute Economic Summary – September 2016

Article By Adam Hurwood | | Financial Planning

• In contrast to the benign market conditions in July and August, September saw a return to market volatility.

• In Australia, the RBA left official cash rates at 1.5% and gave little indication of further rate cuts. The economy is still growing, with the Gross Domestic Product rising over the year and strong retail spending.

• Globally, The US Federal Reserve (Fed) moved closer to raising interest rates, with it becoming increasingly more likely of at least one more rate rise before the end of the calendar year. Continued wage growth increases and low unemployment rates supports further rates rises. In China, the economy is starting to show encouraging signs of stability, with the industrial sector, consumer spending and imports all increasing. In Europe, economic data released in September showed that Europe is yet to be heavily impacted by the Brexit outcome, with industrial production, construction output and retail sales beating market expectations.

• Share markets on the local and global markets were volatile throughout the month, yet finished mostly flat. Australian Shares ended slightly up over the month, with the best performing sectors being materials and consumer staples. In contrast, Telecommunications were the biggest drag performance, largely due to the disappointing earnings guidance over the NBN rollout.

• Globally, shares were flat in most developed countries yet down overall in Australian terms due to the appreciation of the Australian Dollar. UK stocks were the best performers, up 1% over September on the back of the weaker British pound from post-Brexit concerns.

• The biggest movers were in the local bond market, with the Australian 10 Year bond yield jumping 20 basis points on the back of the RBA’s inaction in regards to cash rates and the Fed’s comments providing an inclination of another increase to US cash rates. Globally, bonds fell in Japan and Germany amid volatility due to uncertainty around monetary policies from the Central Banks. US Bonds remained flat over the month.

• In the commodity markets, oil rallied from to above US$50 a barrel after the Organization of the Petroleum Exporting Countries (OPEC) agreed to a deal to reduce overall production to 32.5 to 33 million barrel per day. Coking coal also surged in price over the month (from $US83 per tonne to $US210), largely due to Chinese policies enacted in April which restricted coal miners to only be able to work 276 days per year, limiting production and creating a shortage in supply in China.

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