Uncertainty over US monetary policy, US-China trade relations, the wavering strength of the EU economy, and oil prices were in focus during November, further impacting market volatility and the direction of major equity market indices.
Strong employment but benign wage growth continues
Australia's low unemployment rate of 5.0% was maintained through November, giving reason for the increasing of the RBA's inflation expectations. Reaching a three-year high, wage growth rose to 0.6% for the September quarter (2.3% annualised), however this number was primarily driven by the Healthcare and Public Assistance (2.8%) and Training and Education (2.7%) sectors, whilst wage growth in the Private sectors was significantly lower.
House price falls accelerate
House prices continued to fall in Australia as a result of a tighter supply of credit, weak foreign demand and an increase in housing supply. Dwelling prices in capital cities fell 4.6% (annualised) in October and accelerated to a 5.3% fall in November. Despite falling house prices and weak equity returns through October and November, the Westpac Melbourne Institute Index of Consumer Sentiment rose 2.8% to 104.3 over the month.
Australian capital expenditure weaker than expected
Latest numbers show that construction activity fell by 2.8% over the September quarter which will drag on total GDP growth. In addition, private capital expenditure fell 0.5% in the quarter, weaker than expected, driven by a slump in mining investment amidst low energy prices. Nevertheless, there are positive signs – equipment investment grew 2.2% over the quarter and spending expectations for 2018-19 have improved, suggesting 8.7% annual growth in non-mining investment.
Negative trend in Australian shares continues
Ongoing volatility in equities continued into November with the S&P/ASX200 Accumulation Index losing 2.2% over the month. The S&P/ASX 200 Resources Accumulation Index was hit the hardest, losing 6.5%. All other major Australian indices were also down, with the S&P/ASX 200 Accumulation Industrials Index reporting a 1.1% loss and both the S&P/ASX 200 AREIT and the S&P/ASX Small Ords Accumulation Indexes losing 0.4%.
US consumer confidence and PMIs fall as unemployment rises
Following the strong data of October, unemployment rose slightly in November, alongside a fall in consumer confidence from its 18-year high of 137.9 in October to 135.6 in November. Core inflation fell to 2.1% annualised, as a result the headwind of lower oil prices. Also, as a result of the slump in oil prices, the Dallas Fed Manufacturing index fell significantly to 17.6 in November from 29.4 the prior month. The US Purchasing Managers Index also suffered with the Markit Manufacturing PMI down from 55.7 to 55.4 and the Markit services PMI down from 54.8 to 54.4 over the month.
Market volatility continues amidst US-China trade tensions and interest rate speculation
Uncertainty over the effects of the trade war on economic growth both inside and outside of the US continued in November. US markets were also volatile amidst uncertainty over the Fed’s monetary policy outlook. Furthermore, the effects of the current monetary tightening policy are starting to be seen in softer home building data, with house sales slipping 8.9% in October, confirming house price growth is slowing.
Despite volatility, US equities positive over November
At the end of the month, there was positive investor sentiment as Xi and Trump made some positive developments at the G20 Summit. Also towards the end of the month, Federal Reserve Chairman Powell made some comments suggesting a slower and more flexible approach to interest rate hikes through 2019 causing a more positive outlook from investors. This caused US equity to perform well over the month, with the S&P 500 (+2.0%), the Dow Jones (+2.11%) and the NASDAQ (+0.49%) all up on a total returns basis.
Markets turn around across Asia
Despite positive news at the end of the month as Xi and Trump met at the G20, fears remain over the effects of the trade conflict on China and other developing economies. China has organised fiscal stimulus for 2019 following GDP growth being below expectations in the September quarter. Asian equity markets improved on this news relative to October with the Hang Seng Index up 6.1% and the Korea KOSPI up 3.3% on a price return basis, however the Shanghai Composite fell 0.6%.
Japan continues to report low inflation and growth
Japan suffered from contracted growth in the September quarter, however indicators are expected to improve in 2019 as various infrastructure and construction projects get underway. The Nikkei manufacturing index fell from 52.9 in October to 51.8, suggesting slowed growth in activity. Furthermore, Japan’s annualised CPI for October was 1.4%, below the 2% target. Over November, in the face of the poorer than expected economic data, the Nikkei 225 Index gained 2.0% on a total returns basis.
European markets continue to fall
Markets in Europe have continued to fall on the back of poor economic data and concerns directly attributed to news out of the UK (Brexit) and Italy (Budget), with the STOXX Europe 600 Index losing 1.0% on a total return basis. This was driven by price falls in the CAC 40 (-1.8%), the FTSE 100 (-2.1%) and the DAX (-1.7%).
A more detailed summary, including November market data, is also available.
Information current as at 20 December 2018.
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