April has been a pretty good month in Australia and the world on a number of fronts.
Most share markets around the world continue to recover from the shocks of early February and geopolitical tensions of recent times maybe on the improve with talks between North Korea and other local powers seeming to begin well.
The US Dow, ASX 200, London FTSE, and Germany’s DAX indices all came back rather well during April and have all operated in a reasonable range from November/December 2017 to now, those late months of 2017 all representing high points in recent history.
During April we met with fund managers from Blackrock, Magellan, and PIMCO and, pleasingly, a relatively confident outlook remains a common position. While geopolitical risk remains an ongoing reality, on the risk side all had their eyes on interest rate uncertainty. Interest rates are at historic low levels all around the world at present and while it is clear that they must increase at some point (and this would be a sign of economic improvement mind you), an increase at a faster than expected rate is what most think would have the greatest negative impact. A steady increase in rates over a 3 to 5 year period is what is generally expected, and all analysts note that investors should expect a lower range of returns than we have seen in the past couple of decades.
Globally, big positives are noted in terms of the continuing synchronised growth we’ve commented on for the last 12 months, and low inflation. Here in Australia a continuing and strengthening jobs market, an increase in mining capital expenditure, and a broad observation that “Brand Australia” is on the rise with China gave these analysts reasons to be positive.
I would urge you to also have a quick read of the April statement from the RBA Governor, Philip Lowe (see Link further along this Newsletter). It is noticeably upbeat and, while still noting concerns such as high household debt levels and very slow wages growth, some positive quotes catch the eye:
- the global economy has strengthened over the past year;
- the Chinese economy continues to grow solidly;
- the Australian economy grew by 2.4% in 2017, the RBA forecasts faster growth in 2018;
- business conditions are positive and non-mining business investment is increasing;
- employment has grown strongly over the past year and is rising in all states.
Here’s a couple of charts – a picture paints a thousand words after all…..
Chart 1: We talked about the PMI last month (a widely used global indicator of the economic health of the manufacturing sector. A reading of +50 indicates expansion compared to the prior month).
This chart shows that over 75% of have a PMI above 50 (in green), while the blue line represents a composite global average.
**charts showing the absolute chaos of the GFC never fail to amaze me……
Chart 2: Longer lead time US indicators such as housing sales/applications and the sales of vehicles are always key signals to watch. We can see that these have been trending upwards in a steady and sustainable fashion for quite some time.
Sources: RBA, AdviserVoice, Bloomberg, Investors Mutual, PM Capital, PIMCO, Fidelity, Macquarie.