September was dominated by Central Bank positioning and statements and investor perceptions of these statements. Last month we wrote that “Uncertainty around the timing of the US Federal Reserve raising interest rates was contrasted with other developed economies looking to increase their accommodative policy measures.
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September quarter Consumer Price Index (CPI) – Monetary policy implications: From a monetary policy perspective, the critical judgement to make was whether the September quarter CPI result provides the RBA with a catalyst to revise their inflation forecasts.
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Donald Trump as the Republican candidate for president makes the outcome of the 8 November US presidential election of greater significance than normal.
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Conflicting direction regarding global government economic action came into focus during August. Uncertainty around the timing of the US Federal Reserve raising interest rates was contrasted with other developed economies looking to increase their accommodative policy measures.
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Resource sector outperformance has been dramatic since most commodity prices troughed in early 2016. The impact of China’s fiscal stimulus in response to the pace of the slowdown through 2015 has been more supportive and longer lasting than generally expected.
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Equity and bond markets moved up over July continuing the rally that started last month after the Brexit vote in the UK. It is unusual for both these asset classes to move in tandem as a strong equity market usually indicates an improving economy while a buoyant bond market is usually associated with a slowing economy, or a recession.
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For the last two decades, advanced country central banks have been focussed on price stability and have played the first line of defence in stabilising the economic cycle whereas fiscal policy has played back up, focussing more on fairness and efficiency.
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The relative Price-Earnings Ratio (PER) of the Bank sector to the Industrials excluding the Banks, REITs and Utilities has been substantially de-rated over the past 18 months. After an average discount of close to 25% over the past ten years the sector currently sits at a discount of around 40%, but given the change in the operating environment for banks, is this enough? Given the trends in likely EPS growth, probably not yet.
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The past few weeks have been messy with Brexit, the Australian election, another terrorist attack in France and an attempted coup in Turkey. In fact, the last 12 months have been – starting with the latest Greek tantrum and China share market plunge a year ago.
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June was characterized by heightened volatility as a result of the decision by UK voters to depart the European Union, a decision which was unexpected by markets. The initial sell-off in equity markets was severe however, as is often the case, once investors had time to examine the actual financial impacts of the decision, equities rallied sharply.
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