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3 Minute Economic Summary: June-July 2019

Article By Adam Camac | | Financial Planning

  • After a notable fall in Global Markets in May over a combination of investor concerns around trade wars and Brexit, markets in Australia and around the world rallied back strongly. This was on the back of positive employment and economic growth data from the US and the US Federal Reserve noting that it expected to reduce rates in late July to help maintain positive economic momentum. In Australia the Reserve Bank also reduced the cash rate down to a new record low of 1%. As a result, the prospect of cheaper rates for the medium-to-short term to help spur business lending and consumer confidence boosted markets.
  • In Australia, whilst lower cash rates are expected to only have a small impact on the economy (as dropping rates which were already at significant lows can only do so much), as a whole the economy is expected to remain positive. The mining sector is again providing a notable boost on the back of high commodity prices (particularly iron ore), as are the ongoing government infrastructure projects around the country. This is also being paired with recent tax cuts and (both immediate and into the future) for individuals, and is expected to provide a pickup in consumer spending.
  • This positive market momentum continued into July on the back of strong earnings announcements by a number of US (primarily tech) companies, pushing two of their share markets (the S&P500 and NASDAQ) into new all-time highs. Australia’s share market also finally eclipsed its previous high which was reached almost 12 years ago in late 2007. Globally, above-trend growth is not expected, but the overall picture for investment markets remains solid, however volatility is also expected to be much more prevalent based on the current political climate.
  • Whilst markets continue to fluctuate on news of either positive or negative changes to US-China relations and a potential agreement for tariffs, the Chinese government also continues to support its domestic economy with stimulus measures worth US$108b announced over June in order to help offset the impact on US trade. China also continues to shift its economy from being export driven to greater levels of internal consumption.
  • A stable Chinese economy will also remain a large positive for Australia as our number one export market.
  • Late July also saw the election of Boris Johnson as the UK’s next Prime Minister. Johnson has stated he will be delivering Brexit by the end of October with or without a deal between the European Union. A ‘hard landing’ (having no customs, borders and economic agreements is in place) is now more likely as the EU has stated they will not further negotiate on the previous deal offered. This may likely have a negative impact markets over the very short term at the time of deadline, but not for the broader global economy.

 

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