Share markets have been little changed over the past month, but in the seasonally weak, or volatile, month of October, which saw sharp falls in the 1929 crash, the 1987 crash and, of course, the global financial crisis, a benign performance, should that unfold, could be a sign of strength.
In this video, Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital, discusses three things that have supported financial markets over the past month and three things to watch in the month ahead.
Rising confidence underpins global markets
Over the past month, confidence in the global economic growth outlook has increased with forecasts stabilising around 3%. US economy growth notched higher, while Australia, Europe and China have also contributed to a more reassuring global growth picture.
A view that the Fed monetary policy committee will raise interest rates at its mid-December meeting has also firmed but we believe the Fed’s rate of increase will remain gradual.
Lastly, we’ve seen mounting evidence that commodity prices have bottomed, which is good news for commodity-producing countries like Australia.
US elections could create volatility
Although these signs are encouraging, there are three things to watch over the coming month:
We’re at the tail-end of a seasonally weak period. Typically, August, September and October are the weakest months of the year. Although we’ve come through August and September in reasonable shape, we’ve still got the remainder of October to go. We could see a bit more volatility over the next month or so in financial markets.
The lead-up to the US presidential elections in early November could create volatility. There has been a lot of concern among investors that Republican candidate Donald Trump might win. What would his policies mean for the US and for the global economies, particularly if his protectionist trade policies set off a global trade war? More recently, there has been concern that Hillary Clinton and the Democrats will get a clear sweep, winning the presidency and Congress, creating uncertainty as to what this may mean.
The final thing is the next Reserve Bank of Australia meeting on 1 November. The RBA will have the third-quarter inflation results which come out at the end of October, in addition to a review of their own economic forecasts.
We have been expecting a further rate cut in November. However, Australian economic data has been relatively solid and commodity prices have been rising, suggesting the RBA may well sit on its hands.
Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.