November Economic Update from MLC

By Liz Maroney, Westlawn Wealth Adviser
SMSF Specialist Advisor™
21 November 2017

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

This month, Bob discusses the record highs experienced by US shares during October, the announcement of Jerome Powell as the next US Fed Chairman and the strong rebound in Australian shares in October.

What drove global markets in October?

Global shares made solid monthly gains of 4.5% in October in local currency terms. Positive global economic data and President Trump’s plan for lower US corporate taxes proved strongly supportive of shares. Concerns over political risk with North Korea, Japan’s snap election and Catalonia’s push for independence from Spain had minimal impact.

US shares achieved new record highs in October. President Trump’s ‘tax plan’ which includes a large corporate tax cut from 35% to 20% as well as significant income tax cuts continued to drive Wall Street. Optimism was further enhanced by solid US economic data featuring positive business surveys and stronger retail spending.

However given that key US inflation measures remain below the 2% target, the Federal Reserve (Fed) is expected to only gradually raise interest rates over coming months.

European shares made further encouraging gains in October. European economic data is positive with robust business surveys and solid jobs growth. The European Central Bank (ECB) announced plans to further reduce their asset purchases from €60 billion per month to €30 billion in 2018. This is perceived as only a modest tightening in monetary policy.

Asian shares made strong gains. China’s solid economic growth results for retail spending and industrial production proved supportive of Asian shares. Japanese shares made strong gains with the snap election results on 22 October maintaining the leadership of Prime Minister Shinzo Abe.

How about markets in Australia?

Australian shares rebounded strongly in October (4.0%) after a disappointing performance in September. The Information Technology (8.7%), Energy (6.5%) and Health Care (5.6%) sectors recorded vigorous gains.

However Australia’s economic data remains mixed. Strong jobs growth, favourable business surveys and a rise in consumer sentiments were the key positives. Yet retail spending has weakened over recent months. Australia’s annual inflation was a modest 1.8% for the September quarter but did feature strong rises in electricity prices. The Reserve Bank of Australia kept the cash rate on hold at 1.5%.

The Australian dollar (AUD) continues to drift lower against a stronger US dollar. Lower iron ore prices and Australia’s subdued retail spending results with mild inflation were the key drivers for the weaker AUD in October.

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