Investment update 12 June 2018

Last week in the markets

Over the past week Australian shares gained 0.9% and small company shares gained 1.2%. Shares in developed countries rose 1.4% and the US market gained 1.6%. Shares in emerging markets grew 0.5%. The Australian dollar increased by 0.4% to 76.01 US cents. The Australian 10-year bond yield increased to 2.78%, with US 10-year bond yield also increasing to 2.95%. The oil price fell 0.1% to 65.74 US dollars per barrel.

Australia's economic growth

Australia recorded strong economic growth of 1% for the first quarter of this year, and 3.1% over the last 12 months (to end of March 2018). This was a positive surprise.

What drove the strong economic growth result? Commodity exports (iron ore, coal, and liquefied natural gas) were a strong contributor, as were business investment and government spending. We consider some of these drivers to be more likely one-off contributors rather than the start of a trend.

Interestingly, the largest driver of Australian economic activity (about 60%) relates to household spending. Yet Australian households are not spending more; they’re heavily indebted and wage growth has been weak. With signs that house prices are cooling off, we’re watching this area closely.

In summary, Australia’s amazing record of 28 years free of recession continues, and the latest results look strong. Nonetheless, there are risks to the future, particularly to the crucial household sector.

 

Signing off

David Bell | Chief Investment Officer

Past performance isn't necessarily an indicator of future performance.

Data sourced from Bloomberg and ABC.