Quarterly Economic Update: October – December 2019
The October – December quarter was again dominated by low growth, low interest rates and low inflation. The RBA again cut interest rates at its October meeting to a record low of 0.75%, and this, perhaps, contributed to one of the quarter’s highlights: a significant lift in home prices. However, the strongest gains – in excess of 6% for the quarter – were limited to Sydney and Melbourne.
The Australian share market finished the quarter pretty much where it started, having traded in a relatively narrow band for the entire quarter. In contrast, and probably due to progress on a trade deal between the US and China, international markets rose steadily, collectively gaining around 8.5% from October to December.
The Aussie Dollar gained against the US Dollar (+3.8%), the Japanese Yen (+4.5%) and Euro (+1.2%), but fell against the UK Pound (-2.9%).
Dominating the news for the entire quarter were the fires that devastated large areas in every state. The loss of lives and livelihoods, of homes, businesses, livestock and wildlife will have a lasting impact on the nation.
As for investors, the situation is complex. It can be expected that insurance companies with exposure to fire losses will see their profits take a hit, which should trigger a decline in share prices. The fires have negatively impacted forestry, agriculture, tourism and recreation, though these sectors are not major components of the share market. However, the hit to thousands of farmers and small to medium sized rural businesses will likely place a general drag on the economy.
On the other hand, companies involved in clean up and reconstruction should see a boost in demand for their products and services. This includes manufacturers of building materials, construction firms, and a range of service providers.
While the cost of the fires will run into many billions of dollars, this needs to be viewed in the context of a national economy worth nearly two trillion dollars and a share market dominated by companies that have little or no direct exposure to the fires. On their own, the fires are unlikely to be market shifting, with action limited to specific shares.
The position of Boxing Day as the big retail event of the year is being challenged by new events on the retail calendar – particularly Black Friday (the day after Thanksgiving in the US), which is then followed by Cyber Monday. Retailers who previously relied on a big, un-discounted boost to their sales in December are now being forced to offer heavy discounts late in November. However, concerns are that rather than boosting total seasonal sales, this ‘pulls forward’ sales from December so that November will become the bigger retail month. Good for consumers, not so good for retailers.
We hope you find our economic update informative, if you would like to discuss your financial situation, please don't hesitate to get in touch with one of our Advisers.