While market volatility is likely to continue, investors could have several good reasons to feel more certainty leading to confidence over the next several weeks, depending on reaction to economic news from different sources, says David Bryant head of Australian Unity Investments.
“While the big story locally might be the new Prime Minister and the feeling it’s a change for the better, the main economic news is interest rates in the USA.
“Our economy could do with a little boost from any feel good factor, even though markets will want to see action and not just words out of Canberra and the news out of the USA and China is still mixed.
“The Feds indication that it is ready to move in October or December takes pressure off the Reserve Bank of Australia to act on domestic interest rates and it is likely that the end of quantitative easing, and any increase in interest rates in the USA, will be a blessing in disguise for Australian investors.
“On the positive side USA unemployment has halved in the last five years to 5.1% with 200,000 new jobs being created a month.
“Inflation risk still remains low though, and will stay that way until excess capacity is used up.
“On the downside, the US Employment Cost index was only up 0.2% in the June quarter, the lowest in its 33 year history while other data such as manufacturing is still weak and more jobs are still needed.
“The Chinese economy is still a work in progress and although there are positive signs, it’s difficult to predict their total impact.
“Certainly the Chinese government will benefit from a stronger US dollar with $3.6tn USD reserves and low external debt.
“Although the price bubble has now gone, iron ore purchases are still solid – even though the prices are back to 2008-10.
“However, the Chinese government still needs to drive growth through measures such as infrastructure. A 25% increase in spending in the past year is a sign of things to come.
“In the local economy a stronger USD will get the AUD down further, helping our exports and encouraging investment in service industries such as education, tourism and financial services.
“A higher USD also improves returns on our resources and makes other material exports such as agriculture more competitive.”
Australian Unity Investments (AUI) is the funds management arm of financial services, health and retirement living services provider Australian Unity. AUI provides specialist mortgage, property, fixed interest and equity products to investors.
AUI’s investment approach is to use its established in-house expertise in property and mortgages while also forming joint ventures and strategic alliances with other specialist organisations.
For more information please contact:
Phone: 03 8682 4401