Economic Update January 2018

Summary

Within this month’s update, we share with you a snapshot of economic occurrences both nationally and from around the globe. 2018 shaping up as another good year for investors – Global growth co-ordinated – United States (US) tax reform – Strong jobs growth in Australia

Content

Within this month’s update, we share with you a snapshot of economic occurrences both nationally and from around the globe.

2018 shaping up as another good year for investors

– Global growth co-ordinated
– United States (US) tax reform
– Strong jobs growth in Australia

We hope you find this month’s Economic Update as informative as always. If you have any feedback or would like to discuss any aspect of this report, please contact your Financial Adviser.

The Big Picture

After almost a decade of economic woes around the world, all the major economies are starting to come good together.

China, as we expected, not only stayed strong, it also gathered a little pace towards the end of 2017. The US certainly gathered momentum finishing the year at a rate of 3.2% pa.
Even Europe is looking strong but the big surprise is the way that the third largest economy, Japan, has at last put five strong quarters back to back.

When growth is co-ordinated like this it is much harder for any individual country to fall into recession anytime soon.

But the prospects for 2018 became even better after Trump got his tax reform through at the eleventh hour. It is doubtful if analysts have yet fully digested the consequences. It may well be that macro and market forecasts will be revised upwards in the next few months.

Citi produces a ‘surprise index’ for many major countries. It is based on how often analysts’ forecasts are beaten by the actual events. The US index stands at a reading of +73 which is a six year high. The Australian index stands at  10.9! We keep thinking things are better than they really are.

Global growth is likely to keep us well out of recession but we are likely to continue to underperform. Our jobs creation has been strong all year – largely because of immigration. Our unemployment rate stubbornly stands at a moderately high 5.4%

The Westpac consumer sentiment index stands at just above 100 but that is only for the second month this year. NAB’s business conditions and confidence indexes, however, remain consistently strong.

Major share markets did well around the world with Wall Street being the stand-out performer. But Australia didn’t do too badly after a bad reaction to various bank inquiries. The ASX 200 posted growth of over 13% over 2017 when dividends and franking credits are factored in.

There are a number of things to watch out for in 2018. The Brexit negotiations between Britain and Europe are progressing without any major problems so far. The new US Federal Reserve chairman looks set to make two or three rate hikes while our RBA is not expected to move in 2018.

Our Royal Commission into Financial Services might cause some angst, depending how press releases are handled.

The more difficult possibility to assess is Trump’s wish to commence a big infrastructure programme. In the election campaign he was talking about a trillion dollar deal, but that has since been scaled back to 200-300 billion dollars. With tax reform behind him, we should see some movement on this front in January.

The ASX 200 closed at the highest level since December 2007 on the penultimate trading day of 2017 and we see growth of about 5% in 2018 – but that means that the November 2007 peak is unlikely to be surpassed this coming year.

We see strong growth continuing on Wall Street in 2018. But, if analysts revise earnings forecasts upwards in January based on company tax cuts, we might see very strong growth in the first half of the year.

On the commodities front, copper, gold and oil prices did well in 2017. It would be sufficient for our resources sector to have a good 2018 if these prices just hold over 2018.

In conclusion, we see it unnecessary to take on extra risks in 2018 to chase returns. Volatility on share markets was unusually low in 2017, and that is expected to continue for the foreseeable future. To continue reading… https://www.infocus.com.au/news/economic-update/