January Economic Update from MLC

By Liz Maroney, Westlawn Wealth Adviser
SMSF Specialist Advisor™
16 January 2017

MLC Senior Economist and Portfolio Specialist, Bob Cuneen, reviews events in Australian and overseas markets during December 2016.

This month, Bob discusses Trumps’ promises of corporate tax cuts and infrastructure spending and political risks in Europe, the strong gains for global shares as US shares surged to record highs, and how Australian shares performed well as stronger iron ore and oil prices boosted the resources sector.

How did markets perform in December?

Global shares made strong gains in December as US shares surged to record highs. President-elect Donald Trump’s ambitious economic stimulus program is seen as positive by markets despite the lack of policy detail. The US Federal Reserve’s (Fed’s) 0.25% interest rate increase in December had minimal impact on markets given the Fed’s guidance that future interest rate rises should be “gradual”.

European shares recorded surprisingly robust gains in December. Concerns over Italy’s constitutional referendum proved to be only temporary. Investors gained comfort from positive European business surveys and consumer spending. The European Central Bank’s announcement to extend their asset purchase program to December 2017 also supported shares.

Japan’s share market surged higher with the benefit of a weaker yen currency and stronger business surveys.

Australian shares performed well in December as stronger iron ore and oil prices supported the Resources sector. Even interest rate sensitive sectors such as Australian Real Estate Investment Trusts (6.8%) and Utilities (8.7%) managed to rebound given some stabilisation in Australian bond yields.

Global bond yields were mixed in December. US government bond yields climbed further given the prospect of larger budget deficits and higher US government debts under the Trump stimulus plan. This rise in US government bond yields was also supported by the Fed raising their median forecast for US interest rates in 2017. European government bond yields however edged lower in December. Political risks with Italy’s December referendum as well as the French and German elections in 2017 supported European bond markets.

Australian government bond yields appear to be stabilising after the sharp rises seen in recent months. Mixed economic activity data in December served to cap the rise in bond yields. The Federal Government’s mid-year budget update also provided some assurance to the credit rating agencies to maintain Australia’s “AAA” rating.

The Australian dollar weakened in December against the stronger US dollar (USD). The prospects of further US interest rate rises in 2017 favoured the USD at the expense of all the major currencies.

What were the key factors driving markets?

The major themes driving markets in December continued to be Trump’s promises of corporate tax cuts and infrastructure spending, as well as political risks in Europe.

In the US, economic activity was positive with solid consumer spending and job gains, thereby suggesting that its economy enters 2017 with considerable momentum.

In Australia, our economic activity was mixed. We recorded a rare contraction in activity in the September quarter with real GDP declining by 0.5%. This was countered by solid job gains, stronger retail sales and a stable National Australia Bank business survey. This suggests that our weak GDP result should only be a temporary growth setback.

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.