Market Update: January 2018

Strong trend of global growth with this forecasted to rise to 3.6% in 2017 and 3.7% in 2018 – U.S. annual rate of 2.5%, Euro Area 2.7% and China 6.8% in December 2017.
DOW ended at 24,719 in December from 22,405 in September, ASX All Ords rose from 5,744 at end of September to 6,167 at end of December, still short of the all time high whilst the Dow has set record after record.
NAB’s business survey for December was positive with strong business conditions, however retail figures continue to slow with this weakness concentrated in discretionary spending.
RBA outlook unlikely to increase rates in the short term. Rate remains unchanged at 1.50%.
Australian GDP figures of 0.6% in the September Quarter resulting in annual GDP growth rate of 2.8% was below market expectations. Positive contributions from non-dwelling construction was unable to offset weaker domestic demand and foreign trade.
Unemployment rate figures briefly dropped to 5.4% in November before rising to 5.5% in December led by an increase in the workforce participation rate which offset strong underlying employment gains.
Commodity prices increased in Australian dollar terms, due predominantly to a depreciation in the AUD with commodities in US dollar terms declining by 0.8% over the quarter. On an individual basis there were strong gains in the spot price of zinc, aluminium, copper and nickel.
The business conditions index was unchanged at a strong +13 index points, which is well above the long-run average of +5 index points.

The employment index pulled back a little in December, and while it remains consistent with a solid rate of job creation, it does suggest employment growth may ease back from current extraordinary heights.

Australia’s December retail sales report came in well under expectations, partially reversing a strong lift in November. According to the Australian Bureau of Statistics (ABS), sales fell by 0.5% with sales retracing during the month. The annual pace of sales slowed to 2.5% from 2.9% in November. Even with the weakness seen in December 2017, quarterly sales volumes still rose by 0.9% in seasonally adjusted chain volume terms.

Sydney dwelling values have fallen by -2.1% over the final quarter of 2017 however, they are 3.1% higher over the past year. For the same period, house values are 2.1% higher and unit values are up 5.4%.

Dwelling values have increased by 0.9% over the three months to December 2017 in Melbourne. Over the past year dwelling values are 8.9% higher with house values rising 9.1% and unit values 8.4% higher.

Brisbane home values increased by 0.3% over the three months to December 2017 and are 2.4% higher over the past year. House values have increased by 3.1% over the past year while unit values have fallen by -1.2%.

Perth dwelling values increased by 0.1% over the three months to December 2017 however, they are -2.3% lower over the past year. In 2017 house values have fallen by -2.6% and unit values have fallen by -0.9%.

Dwelling values in Adelaide increased by 0.3% over the fourth quarter of 2017 and are 3.0% higher over the past year. Over the year, house values have increased by 3.3% and unit values have increased by 0.5%.

Quarterly change in dwelling values (Dec’17 Quarter)

Sydney Melbourne Brisbane Adelaide Perth Hobart Darwin
-2.1% +0.9% +0.3% +0.3% +0.1% +3.1% -2.9%

US GDP growth of 2.5% was recorded in the December quarter which was a slight slowdown from expectations.

The Employment Cost Index, the broadest measure of labour costs, increased 0.6 percent after an unrevised 0.7 percent rise in the third quarter, the Labour Department said on Wednesday. That lifted the year-on-year rate of increase to 2.6 percent, the largest increase since the first quarter of 2015, from 2.5 percent in the third quarter. Wages and salaries were up 2.5 percent in the 12 months through December.

A $1.5 trillion tax cut package pushed through by the Trump administration and the Republican-controlled U.S. Congress in December is also expected to bolster compensation growth. The tax cut has resulted in some companies either paying out one-time bonuses or raising wages for employees.

The US Federal Reserve lifted the official rate to 1.5% in December and is expected to increase the rate to at least 2% this calendar year.

The eurozone grew at its fastest rate in a decade in 2017, according to the latest official estimate. “The eurozone over the last decade has seen a lot of uncertainty with the recession hitting the bloc and the Greek debt crisis. However, with strong GDP…and other economic indicator figures the eurozone has put all that behind them and is looking stronger and more stable than ever, despite Brexit and the ongoing uncertainty surrounding it,” said Balraj Sroya of Foenix Partners.

Company surveys and industrial data had signalled a vibrant German performance in the fourth quarter, and strong business sentiment and order flows may boost prospects for 2018. There’s also strength beyond its borders, with data Thursday showing euro-region industrial production rising and French business sentiment at the highest in almost seven years.

China’s economy grew 6.9 percent in 2017 and 6.8 percent in the fourth quarter against the prior year ago period.

Smaller enterprises have a more upbeat outlook, financial experts are increasingly optimistic and sentiment in the steel industry is recovering. The week-long Lunar New Year holiday that ended Feb. 21 did disrupt some economic activity, as sales managers saw a slight slowdown and satellite imagery indicates that manufacturing momentum has eased. The China Satellite Manufacturing Index, which edged down to 51.6 in February from 51.8. The gauge published by San Francisco-based SpaceKnow Inc. tracks commercial satellite imagery to gauge activity levels across thousands of industrial sites.

A survey by the China Economic Panel, a project of the Centre for European Economic Research in Mannheim, Germany, and Fudan University in Shanghai — showed 12 month expectations rose to 14.7 points from 1.1 points in January.

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