Market Highlights - A look back at August 2018

Australian Economy – Another year, another Prime Minister. With polls showing the electorate might be cooling off on Malcolm Turnbull, the right-wing factions of the Liberal party seized their opportunity to get rid of their centrist leader and caused a leadership spill. The result, a new and more conservative (but not too far right) leader. While this was brewing, the unemployment rate hit a 6 year low of 5.3%1. This is still a bit of a way off the 4% rate hit in 2008, but the employment situation has been trending well despite a slowing construction industry.  

Global Economy – Tensions seem to only be getting stronger in the White House, but as the President is publicly elected, getting rid of him is much harder than getting rid of a PM. This is especially more so with the U.S. economy booming on the back of a high fiscal deficit and low interest rates (unemployment rate now below 4%1). On the global landscape, the trade wars have also been simmering along, with the main belligerents (Trump and China) not yet taking a back step.

Investment Markets – It seems that the market has decided who is likely to win the trade war, with US markets seeing strong returns in the month of August (+3%), while Chinese and European equities gave up 4-5% across the board. Australian equities were flat for the month, however, the Australian dollar was down 3% for the month (down 10% for the last 12 months)2.

Outlook – Talk of impeachment in the U.S. has ramped up, but with the economy running hot, there is likely to be reduced support for getting rid of the man at the top (at least until the mid-term elections are over). It will be interesting to see how long the heavy stimulus (introduced as a result of the corporate tax cuts) will be able to be supported by growth. With the U.S. budget deficit set to hit $1 trillion, the drag on growth caused by higher interest rates and large interest payments has the potential to cause long term damage to the U.S. and the global economy. 

S&P/ASX 200 – 12 months to 31 August 2018

Source: Core Equity Services

Footnotes: 1. TradingEconomics; 2. Bloomberg data .

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