January Market Update 2018
- As was strongly anticipated by the market, the US Fed lifted the funds rate to 1.5% in mid-December.
- The US economy appears to be operating near capacity, with an unemployment rate of just 4.1% and an underemployment rate of 8% – the lowest since 2006.
- The recovery in Europe continues to defy expectations, with no sign of confidence diminishing despite political uncertainty in Germany and Spain.
- The Chinese economy has also exceeded expectations in 2017, expanding by just under 7% in the first three quarters.
- The Australian economy is being impacted by weak wages growth, but December saw an encouraging jump in consumer sentiment.
December saw positive economic news from major developed markets, with rising levels of business sentiment and favourable employment conditions providing a solid foundation for growth. While inflation remains below target, central banks have begun the process of gradually tightening monetary policy as labour market conditions continue to improve.
In the United States, the final estimate of Q3 GDP indicated real growth of 3.2%, which is slightly lower than the second estimate reading of 3.3% but still growing at its fastest pace in more than two years. Growth in consumer spending, which accounts for more than two thirds of the economy, was revised down 0.1 points to 2.2%.
Growth across the 19 eurozone countries has improved steadily over the past year, and the recovery has also become more broad-based, both across different countries and sectors. In December, the European Central Bank made a significant upgrade to its 2018 growth forecast for the euro area, lifting its expected annual growth rate from 1.8% to 2.3%, while the outlook for inflation also moved higher from 1.2% to 1.4%.
Recent Chinese data indicates a slight loss of momentum in recent months. Although China’s official PMI picked up to 51.8 from 51.6, the Caixin PMI dropped to its lowest level in five months. Measures of industrial production and investment also appear to have softened, while policy tightening has focussed on the property sector.
In Japan, Q3 GDP growth was revised up to an annualised 2.5% from a preliminary estimate of 1.4%, and just shy of the 2.6% recorded in Q2. The main drivers of growth were corporate investment and net exports, offset by a contraction in domestic consumption. Inflation is estimated at 0.7% for fiscal year 2017, and 1.1% for 2018. Consumer prices are still lagging in an economy that appears to be growing at a steady pace, thwarting the Bank of Japan’s attempts to achieve its 2% inflation target.
While there was no monetary policy meeting of the RBA in January, December’s minutes revealed the board’s continued ambivalence towards domestic conditions. Wages remain stable at a low rate, despite the 3.3% increase in awards and minimum wages in the September quarter, and this appears to have impacted household spending.
The information contained in this Market Update is current as at 21/01/2018 and is prepared by GWM Adviser Services Limited ABN 96 002 071749 trading as ThreeSixty Research, registered office 105-153 Miller Street North Sydney NSW 2060. This company is a member of the National group of companies.
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