Over the past week Australian shares were up 0.7% with small company shares rising 1.1%. Shares in developed countries rose 0.5% with the US market up 0.5%. Shares in emerging markets were down 0.2%. The Australian dollar fell 1.2% to 76.72 US cents. The Australian 10-year bond yield rose to 2.81% while the US 10-year bond yield increased to 2.96%. The oil price rose 1.5% to 68.38 US dollars per barrel.
Last week we detailed our recently reviewed core economic scenario, titled ’Late stage synchronised growth, well managed’. This scenario is reasonably supportive of long term investments in growth assets.
However, forecasting economic outcomes is always difficult. To counter this, we consider a range of possible economic scenarios. We consider the next most likely scenario to be ‘Late stage synchronised growth, policy mistakes’.
We believe the potential for policy mistakes is reasonably high. Policy mistakes could occur in many areas, primarily:
Compared to our core economic scenario, this alternative scenario is less attractive. An economic slowdown is likely to be deeper and more prolonged. This would be a less appealing environment for investing in growth assets.
David Bell | Chief Investment Officer
Past performance isn't necessarily an indicator of future performance.
Data sourced from Bloomberg.