Read the latest investment environment update from our investment advisers, Whitehelm Capital.
Whitehelm Investments Market Update - January 2018
The 2018 calendar year has kicked off with a continuation of positive global economic data reflecting a sustained global uptick in growth that characterised the second half of 2017. In particular, the American and European economies are continuing to exhibit positive performance, while the Australian economy had a comparatively weaker start to the year. The Australian economy’s subdued start to the year was led by falling house prices and disappointing fourth-quarter inflation. Over the month of January, house prices fell in every major city except regional centres Darwin and Hobart. Fourth quarter inflation data, released in late January, came in below expectations.
Headline CPI rose 0.6% over the quarter, putting the annual figure at 1.9%. The sluggish inflation print revealed a lack of broad inflationary pressure within the economy, reducing impetus for an RBA rate increase in the near term.
The fourth quarter GDP print for the US economy meant annual growth for 2017 reached 2.6%. Employment data exceeded forecasts, with both government and private sector measures showing a healthy level of job creation. Additionally, wage growth continued to rise, reaching an annualised 2.9% - well above inflation and the fastest rate in nearly a decade. The Federal Reserve left interest rates on hold at its late January meeting, but maintained its upbeat economic outlook, firming expectations of a rate hike in March. Janet Yellen’s term as Federal Reserve Chair came to an end, with her replacement, Jay Powell, assuming the role from early February.
Eurozone data continued to prove robust over January. Real GDP growth over the fourth quarter reached 0.6%, eclipsing both the US and UK and meaning year-on-year growth hit 2.7% versus 1.8% for 2016. Headline inflation weakened to a year-on-year 1.3%. The ECB has remained tight-lipped regarding its monetary policy plans, with President Mario Draghi suggesting in early February that it would be too early to set a definite end date for the ECB’s asset purchase program as long as inflation remains below the target rate of just under 2%. The current extension to the programme is set to end in September 2018.
In stark contrast to the Eurozone, the United Kingdom’s annual real GDP growth figure for 2017 fell 0.1% to 1.6% - the slowest for a calendar year since 2012. The annual inflation rate for December fell 0.1% to 3.0%, with the pound’s appreciation against the US dollar in late January likely to put the inflation rate under further downward pressure in the first quarter of 2018. On a positive note, wage growth came in at 2.5% year-on-year, closing its gap with inflation. The unemployment rate remained at a very low 4.3%.
Global equity markets had yet another strong month of performance in January, owing to indications of strong economic growth and the passing of tax reform legislation in the United States. On the other hand, fixed income returns were poor in January, with upward revisions in global growth forecasts, including from the IMF, contributing to expectations of further tightening form central banks. Treasury yields soared in late January amid a market sell-down, with 10-year yields rising to just under 2.9% in early February. Global equity markets endured a correction coinciding with this sharp spike in yields.