February Economic Update from MLC

By Liz Maroney, Westlawn Wealth Adviser
SMSF Specialist Advisor™
15 February 2017

MLC Senior Economist and Portfolio Specialist, Bob Cuneen, reviews events in Australian and overseas markets during January.

This month, Bob discusses how US shares made record highs in January given President Trump’s promises of corporate tax cuts and infrastructure spending. Also discussed are the key factors driving markets including trade threats, the prospect of higher US interest rates and political risks in Europe. Meanwhile, economic activity in Australia remains mixed. 

How did markets perform in January?

US shares made record highs in January. The potential for stronger US economic growth and higher corporate profits in 2017 with President Trump’s stimulus program buoyed US shares. Positive economic data also proved supportive. US business and consumer sentiment surveys showed solid gains, there was strong consumer spending results and healthy job gains. Yet inflation pressures are building with wages growth picking up speed. Janet Yellen, US Federal Reserve (Fed) chair, warned that the Fed expects to raise interest rates “a few times a year” over the next two years.

European and Japanese shares drifted lower. Investors became more cautious given concerns over President Trump’s “America first” rhetoric and the potential negative impact on global trade. Political risk also weighed on European shares given the forthcoming Dutch (March 2017) and French (April-May 2017) elections as well as the German election later this year.

Australian shares fell 0.8% in January. Some of the interest rate sensitive sectors such as Australian Real Estate Investment Trusts (-4.7%) and Consumer Discretionary (-4.3 %) disappointed. Yet the Metals and Mining sector performed strongly with a 6.8% gain given rising iron ore and metal prices.

The Australian dollar (AUD) surged by 4.8% against a softer US dollar given these higher commodity prices. This stronger AUD performance had a negative impact on unhedged global share returns which fell 2% in January.

US government bond yields essentially moved sideways in January awaiting more policy detail on President Trump’s stimulus plan. Solid US economic data and rising inflationary pressures suggest that the Fed will continue to raise interest rates in 2017. European government bond yields rose. Stronger European economic data and higher inflation outcomes were key contributors to the rise in bond yields. Political risks with forthcoming European elections also cautioned investors.

Australian government bond yields edged lower in January. Mixed Australian economic activity data and mild inflation were supportive of bond yields. Given competitive pressures in the retail sector and slow wages growth, Australia recorded a subdued 1.5% annual inflation rate for the final quarter of 2016.

What were the key factors driving markets?

The major themes driving markets in January continued to be President Trump’s bold stimulus promises as well as trade threats, the prospect of higher US interest rates and the political risks in Europe.

Given solid US economic data and rising inflationary pressures, the Fed is expected to continue raising interest rates in 2017. However financial markets are debating how fast and how high this rise in US interest rates will be.

In Australia, our economic activity remains mixed. There were solid job gains, encouraging results from the National Australia Bank business survey as well as a strong rebound in exports. Yet consumer sentiment and spending are sedate while inflation appears contained. Given this mixed Australian data, financial markets expect the Reserve Bank of Australia to keep the cash rate steady at 1.5% over coming months.

Contact Liz Maroney

If you have any questions or wish to discuss your investments, please contact Liz:

Copyright © 2017

Westlawn Wealth Adviser, Liz Maroney is a ...

Important information

This information has been provided by MLC Investments Limited (ABN 30 002 641 661) and MLC Limited (ABN 90 000 000 402) members of the National Australia Bank group of companies, 105–153 Miller Street, North Sydney 2060.

This communication contains general information and may constitute general advice. Any advice in this communication has been prepared without taking account of individual objectives, financial situation or needs. It should not be relied upon as a substitute for financial or other specialist advice.

Before making any decisions on the basis of this communicationyou should consider the appropriateness of its content having regard to your particular investment objectives, financial situation or individual needs. You should obtain a Product Disclosure Statement or other disclosure document relating to any financial product issued by MLC Investments Limited and MLC Nominees Pty Ltd (ABN 93 002 814 959) as trustee of The Universal Super Scheme (ABN 44 928 361 101), and consider it before making any decision about whether to acquire or continue to hold the product. A copy of the Product Disclosure Statement or other disclosure document is available upon request by phoning the MLC call centre on 132 652 or on our website at mlc.com.au.

Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market. Please note that all performance reported is before management fees and taxes, unless otherwise stated.

General Advice Warning
The advice on this site may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial, tax and/or legal advice prior to acting on this information.
Past performance is not a reliable guide to future returns.
The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. 
Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
Liz Maroney and Westlawn Wealth Management Pty Ltd ABN 32 124 861 409, Authorised Representatives of GWM Adviser Services Limited ABN 96 002 071 749, Australian Financial Services Licensee, 105 -153 Miller Street North Sydney NSW 2060.