4 minute economic and market update

October 2017

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What drove global markets in September?

Global shares made solid monthly gains of 2.2% in September in local currency terms.

US shares achieved record highs given President Trump’s bold tax promises and solid economic activity data. President Trump announced a ‘tax plan’ in late September which includes a large corporate tax cut from 35% to 20% as well as significant income tax cuts. This was positively received by Wall Street. Solid US economic results featuring encouraging business surveys and job gains also helped US shares. The Federal Reserve (Fed) announced a plan to reduce their holdings of US government bonds and mortgage securities. However the Fed emphasised that this balance sheet reduction as well as further interest rate rises should be ‘gradual’.

European shares made sharp gains of 4.3% in September. European economic data has been positive with robust business surveys and solid jobs growth. The German election result on 24 September suggests that Angela Merkel should continue as leader for a fourth term, thereby providing some comfort to investors concerned about political stability.

Asian shares also made solid gains. Solid Chinese business surveys and stable economic data proved supportive of Chinese shares. Japanese shares made strong gains given positive business surveys and despite concerns over North Korea’s missile testing.

How about markets in Australia?

Australian shares disappointed in September with a flat return for the S&P/ASX 200 Accumulation Index. There were large falls in the Telecommunications (-4.6%) sector given competitive pressures with Telstra cutting their dividend. Utilities (-3.7%) also fell given concerns over government regulatory scrutiny as well as their sensitivity to higher bond yields. However there were some positive performances from the Health Care (2.2%) and Energy (1.2%) sectors, which helped stabilise the monthly return for Australian shares.

Australia’s economy recorded improving data in September. Economic growth rebounded in the June quarter after a soft start to 2017. Jobs growth also picked up speed with the unemployment rate stabilising at 5.6%. Australian government bond yields increased in September with financial markets anticipating that the Reserve Bank of Australia may be raising interest rates next year.

The Australian dollar (AUD) fell slightly in September. The sharp decline in the iron ore price from US$79 to US$62 per tonne was a key negative contributor to the AUD.

Important information

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