Economic And Market Summary

Most equity markets were lower in June, driven by weak economic data, concerns around Greek sovereign debt and a focus on the cooling Chinese Economy.  US macroeconomic data releases were weaker than expected. While the data suggests that US growth has moderated, this suggests slow, but positive, growth rather than an economic contraction. The US unemployment rate remains high, increasing slightly during the month to 9.2%. The slow pace of economic growth has failed to result in meaningful job creation in the private sector and government jobs continue to decline as a result of budget cuts. Jobs data for June was worse than expected, with just 18,000 jobs created, significantly short of consensus estimates of around 100,000. Chronic high levels of unemployment are likely to persist in the US for some time unless there is a meaningful increase in the rate of job creation.

Growth in Europe also eased, however, the economies of France and Germany continue to outperform Europe as a whole. Economic indicators have been poor in Italy, Spain and Ireland, while the Greek economy continues to contract, reflecting the impact of austerity measures and the sovereign debt crisis. In July, the European Central Bank raised interest rates to 1.5%, the second increase since the end of the GFC. Core consumer price inflation in the Eurozone is currently at 1.8%, just below the target of 2%. In the UK, the Bank of England has yet to increase interest rates, despite high inflation (4.5% headline and 3.9% core). It remains in the difficult position of balancing inflationary pressures with high unemployment levels and soft GDP growth.

While growth in emerging market economies remains robust overall, the outlook has weakened due to concerns of softening demand as a result of fiscal and monetary policy tightening. In many emerging countries, authorities have acted to cool their economies in light of high and rising inflation. Leading economic indicators of Chinese growth continued to moderate during the month, suggesting that these measures have begun to impact growth.  However, despite these measures, Chinese consumer price inflation data came in higher than markets were expecting, with prices rising 6.4% in the year to June. 

The outlook for the Australian economy as a whole remains reasonably positive due to continued strength in Australia’s terms of trade (which measures the price of Australia’s exports relative to imports). This has been driven by an unprecedented boom in the mining sector, but has hurt the retailing, tourism and manufacturing industries which have felt the impact of higher interest rates and the increase in the Australian dollar. Concerns around cost of living increases and global economic uncertainty saw consumer confidence fall further while the savings rate has increased to a level not seen in more than 20 years. Many are now considering the possibility that Australia’s two speed economy could persist in the medium to long term, reflecting structural change in the economy to accommodate the strong mining sector. 

The Australian dollar remains extremely elevated relative to its long term average due to continued demand for Australian commodities as well as the very wide interest rate differentials that exist between Australia and most other developed world economies. After reaching new post float highs in May against the US dollar, the Australian dollar remained steady in June, ending the month at US$1.07.

During June, equities sold off, with the S&P 500 down 1.8% and the MSCI World Price Index down 1.7%, both in local currency terms. Australian equities underperformed most other equity markets, with the S&P/ASX 200 Index down 2.1%. Fixed income rallied during June with Australian fixed income outperforming global fixed income over the month (and over the 12 months to end June). 

Source: Access Capital Advisers Pty Ltd.

This article provides general information only and may not be relied on as legal or financial advice.

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