21 August 2017
Over the past week Australian shares were up 1.3% with smaller stocks rising further (up 1.6%). Shares in developed countries were down 0.4% with the US market down 0.6%. Shares in emerging markets were up 1.6%. The Australian dollar increased by 0.4% to 79.29 US cents. The 10 year bond yield in Australia increased slightly to 2.62% while the US 10 year bond yield remained at 2.19%. The oil price fell 0.6% to 48.51 US dollars per barrel.
When builders flash out their tape measures they call out measurements in millimetres, not centimetres, machinists measure in micrometres and pharmacists in milligrams. It seems odd that something as central as the growth of a country’s economy is measured to only one decimal place.
The gross domestic product (GDP) of Australia is 1,204 billion US dollars, Japan is nearly five times bigger at 4,939 billion USD, while China is nearly 11 times bigger at 11,199 billion USD and the US is larger again at 18,569 billion USD.
There is an old saying in building, ‘measure twice, cut once’. This applies to economies too. In some cases, months after economic figures are released they are revised. This is because the information that GDP figures depend on is not available in a timely fashion. Changes to methodologies can also bring about revisions.
No single economic figure at a single point in time is enough to gauge an economy’s prospects. All figures are measured with a good dose of error and revisions tend not to make the press the way the first headline grabbing estimates do. Recently, the GDP growth rate for the Japanese economy in the 12 months leading to the end of June was measured at 2.0%. So what would be the dollar value of a downward revision on this figure from 2.0% to 1.9% be worth? About five billion US dollars.
At Mine Wealth + Wellbeing we take a long term view to economic forecasts and capital market returns, while maintaining a keen awareness of macro and geo political risks. Measure many, cut carefully might be closer to our philosophy.
Sean Anthonisz | Senior Quantitative Analyst – Asset Allocation