Markets, News, and Views….. 

It looks like we’re heading into the Festive Season on a bit of a high this year in stark contrast to where things stood a year ago in mid-December 2018.  You’ll recall we’d experienced a slide of roughly 13% in the Australian All Ordinaries Index between October and Christmas.  With similar ructions in the other major markets, things were feeling rather uncertain indeed.

But 2019 has turned out to be a stellar year for most investment assets.  The All Ordinaries as an example has shot back up by around 20% to date  – see the Review of 2019 and Preview of 2020 further on in the Newsletter.  

November-December has seen another solid stretch for equity markets as the broad risk-on theme continued.  We noted in last month’s Newsletter that the markets seem to be taking ongoing concerns about growth and geo-politics in their stride and this continued to the point that both the local and US equity markets reached new all-time highs in November, though some turbulence in the first week of December brought things back a touch.

In contrast, the performance of bond markets was mixed, especially for the global bond markets, where expectations of further interest rate cuts have diminished. However, the Australian bond market posted positive returns amid speculation of more RBA rate cuts and possible QE. The Aussie Dollar fell in response, unwinding its gains in the previous month. The price of gold fell as markets unwound expectations of further rates cuts by the US Federal Reserve.

Signs of tentative stabilisation in global growth, especially in manufacturing sectors, were welcomed by the equity markets but it is still too soon to sound the all clear on how growth will evolve in the coming year. Markets expect recovery rather than more slowdown, but it may well be a gentle one as the leading indicators do not support the idea of a robust recovery. In particular, it seems increasingly likely China will not resort to a major stimulus program as it has in previous slowdowns.

On the upside, in the past few days we have seen some geopolitical developments that are likely to be viewed more positively.  Boris Johnson will remain British PM with a significant majority that should see Brexit negotiations proceed relatively quickly now.  Most Britons will be pleased for some greater certainty regardless of which way they actually voted three years ago!     Significantly too, in the past 24 hours the US and China have agreed to a “phase one” trade deal that both sides say has achieved major progress.  

Time will tell but hopefully, at least, the major protagonists will have a break over Christmas and let us have ours…….

The Australian Christmas Dinner Index

And, without wanting to start the Festive Season on a fiscal bummer, we noted with interest this week that the traditional Christmas dinner will cost households a little more this year.   A specially weighted ‘Australian Christmas Dinner Index’ rose by 2.2% for the year to September which Fidelity Investments notes was the fastest annual increase in the cost of Christmas dinner since 2012.    The chart shows that the traditional Christmas dinner costs almost twice as much as it did in 1989, having risen 92% over the thirty years.    Happily, it’s worth it!  J  

Other Sources:  Bloomberg, Quilla Consulting, RBA, Fidelity Investments.