Happy New Year
08 Feb 2019
While it may seem a little late for a New Year’s Greeting, markets were very unhappy at the end of 2018 and all smiles after the first month of 2019.
Market commentators have swung from predicting a synchronized global economic upswing 12 months ago, to concerns about bond yields rising (they are now lower than they were 12 months ago), to concerns about the collapse in global growth and corporate profits. Throw ongoing trade tensions into the mix and it’s enough to make you dizzy, as we have gone full circle or maybe we have done a figure eight in just 12 months.
Of course most of the current predictions will also turn out to be wrong. The world is a complex place.
A major positive factor for the markets in January was a much less aggressive sounding US Federal Reserve. They signalled a more patient approach to watching the economic data, as opposed to several more interest rate increases locked in. This reduced the fear that the Fed would raise interest rates to quickly and gave markets comfort that the Fed still listens to their demands. Profit reports from American companies have been strong and Australian profit reporting season is about to start.
Apart from this, Australia’s economic outlook is deteriorating, although the iron ore price has shot up due to the horrific disaster in Brazil. China is slowing and Europe has flopped. On the upside the US economy is not slowing as had been feared in late 2018.
While the US remains strong, a conclusion to the trade wars would be helpful. However this issue is deeper than first thought, so we are not keen to make fools of ourselves by making any predictions on that issue.
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