Investment update 13 August 2018

Last week in the markets

Over the past week Australian shares rose 0.7% while small company shares fell 0.9%. Shares in developed countries fell 0.7% with the US market down 0.2%. Shares in emerging markets fell 1%. The Australian dollar slipped 1.4% lower to 73.02 US cents. The Australian 10-year bond yield fell to 2.59%, with the US 10-year bond yield falling to 2.87%. The oil price fell by 1.3% to 67.63 US dollars per barrel.

Reserve Bank of Australia (RBA) decides not to change the official cash rate

The RBA has once again left the official cash rate unchanged at 1.5%. The statement by RBA Governor Phillip Lowe provides a summary of their views behind the decision. The main themes included:

  • The RBA sees positive global economic growth, but notes that economic growth in China has slowed a little. In most countries ‘monetary policy’ (broadly, the setting of interest rates) remains supportive.
  • The RBA holds a positive view on Australian economic growth over the next 18 months, supported by several factors: business conditions are positive, non-mining investment continues to increase, there has been growth in resource exports, and there has been a large amount of public (government) spending on infrastructure.
  • The RBA identifies risks to the current positive outlook, notably the unknown potential impact on global trade of any trade wars. Domestically the RBA is concerned by highly indebted households who are experiencing low wages growth.

All these points are broadly consistent with our core economic scenario. The economic outlook and associated risks are periodically reviewed by our Economics Committee.

Signing off

David Bell | Chief Investment Officer

 

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

Data sourced from Bloomberg and Reserve Bank of Australia.