Economic Update – November 2019

Market and Economic Overview


Australian interest rates were lowered by 0.25% to 0.75% in October but left unchanged in November. Most observers expect borrowing costs to be lowered further in the next few months.

The latest reading of Australian consumer confidence fell unexpectedly sharply. This was a little surprising given generally buoyant labour market conditions and declining mortgage costs.

There has also been further evidence of an improvement in the Australian housing market. The latest survey suggested prices added 1.4% in October; the third consecutive month where prices rose by more than 1%.

United States

  • The Federal Funds rate was lowered for the third time in as many months, as US officials responded to deteriorating economic indicators. The 0.25% cut had been widely anticipated by investors.
  • The latest US manufacturing data was dismal, missing all expectations and falling to a three-year low. The downturn has been blamed on the trade conflict with China.
  • Worryingly, weakness in the manufacturing sector appears to be spreading to services sectors. The latest gauge suggested activity levels declined to a three-year low during September.
  • All that said, the slowdown in the overall economy was less bad than feared. US GDP rose at an annual pace of 1.9% in the September quarter, above consensus expectations.
  • September employment numbers were slightly below expectations, but data for the prior month were revised higher. This resulted in the official unemployment rate falling to 3.5%, the lowest level in more than 50 years.
  • Following three consecutive months of modest increases, US inflation was unchanged in September. Importantly, inflation is below the Federal Reserve’s target, suggesting policymakers have room to lower interest rates again, if required.


Consumer confidence in Europe has deteriorated to its lowest level this year.

The survey of economic expectations in Germany was less bad than had been anticipated, but still below zero (indicating expectations of economic contraction) for a sixth consecutive month.

Germany’s trade surplus fell sharply in August, primarily reflecting lower exports.

In the UK, the Brexit process was delayed yet again. European leaders agreed to a further three-month delay in the UK’s proposed withdrawal from the European Union, extending the deadline to 31 January 2020.

Subsequently, Members of Parliament voted to hold a general election in the UK on 12 December, effectively placing the fate of Brexit in the hands of the British public.

New Zealand

  • The value of exports was higher than expected in September, which supported New Zealand’s trade balance. Imports were little changed from the prior month.
  • Consumer confidence rebounded from very subdued levels – September’s reading was the worst in more than four years.

The RBNZ did not meet and interest rates were unchanged.


Annual GDP growth in China remained at 6.4% in the March quarter, aided by the Government’s pro-growth policies. These supported consumer demand, which helped offset the impact of ongoing tariff-related trade disruptions. Retail sales were 8.7% higher than in the corresponding period a year ago.

In Japan, there was an uptick in inflation as food and transport costs stabilised. This is unlikely to be sufficient for the Bank of Japan to abandon its zero interest rate policy.

Australian dollar

The Australian dollar appreciated to a three-month high against the US dollar, reflecting optimism that a trade deal between the US and China might be close to being agreed. The local currency added 2.1% against the US dollar, closing the month of October at 68.9 US cents. The ‘Aussie’ appreciated on other exchanges too, adding 1.4% against a trade-weighted basket of international currencies.


Commodity prices were mostly higher during October, amid easing trade tensions between the US and China. Most industrial metals posted gains, including zinc (+8.1%), aluminium (+2.9%), copper (+2.5%) and lead (+2.2%).

Nickel (-6.2%) was a notable exception, falling amid policy uncertainty around Indonesia’s proposed nickel ore export ban. Iron ore (-10.5%) fell sharply, primarily on an improving supply outlook. Brazilian mining giant Vale continued to bring production back online following severe supply disruptions earlier in the year.

Precious metals were mostly higher, including gold (+0.5%), silver (+3.1%) and platinum (+5.0%). Oil (Brent +2.8%) finished higher, as progress appeared to be made towards a resolution of the US/China trade war.

Australian equities

The Australian share market started October with its worst weekly return in nearly a year. Reinvigorated fears of a weakening global economy, disappointing manufacturing data and ongoing Brexit uncertainty weighed on the index. The market since recovered, as Australian shares followed global peers higher following some reasonably solid corporate earnings numbers in the US.

In the month as a whole, the S&P/ASX 100 Accumulation Index declined -0.4%. Small companies (-0.5%) once again underperformed their large cap peers, extending their underperformance to -2.9% in 2019 to date. The S&P/ASX Small Ordinaries Accumulation Index was dragged lower by the drastic decline in Southern Cross Media (-33.6%) following a quarterly update that showed revenues had slumped -8.5%.

Listed property

Global listed property was up modestly in October. The FTSE EPRA/NAREIT Developed Index returned 0.4% in AUD terms, performing in line with the broader global equity market.

The UK was the best performing property market (+5.0%) for the second consecutive month as the perceived likelihood of a ‘no deal’ Brexit continued to wane.

In Australia, AREITs returned 1.2% for the month, with the Diversified (+1.9%) and Industrial (+1.5%) sub-sectors leading the charge.

Global equities

Global equities maintained their upward momentum from September. Investors were heartened by the announcement of a “limited trade deal” between the US and China and a reasonably solid corporate earnings reporting season in the US. Together, these positive influences powered the S&P 500 Index in the US to new all-time highs.

The MSCI World Index jumped 1.9% in local currency terms in October, also to a new high, although Australian dollar strength reduced the equivalent returns to just 0.4% for Australian-based investors.

The Japanese Nikkei jumped over 5.0% in local currency terms and was the strongest market for a second consecutive month. UK shares struggled with the ongoing Brexit shenanigans. Having been down as much as -4.4% in local currency terms, the FTSE recovered to be down just -1.9% by month-end as the probability of a ‘hard Brexit’ dissipated.

The improved trade outlook helped emerging markets to outperform developed markets for the first time since January. The MSCI Emerging Markets Index rose 2.0% in AUD terms, led by particularly strong returns from Russian stocks.

Global and Australian Fixed Interest

Government bond yields rose for a second consecutive month, resulting in negative returns from most fixed income markets.

While economic data remained reasonably downbeat, hopes of a possible partial resolution to the US/China trade standoff saw yields edge higher.

Bond market participants appear to be thinking that we have likely already seen most of the likely interest rate cuts worldwide and that further moves could be some time away.

In the US, 10-year Treasury yields closed the month just 3 bps higher, at 1.69%, but there were larger moves elsewhere.Yields rose 16 bps and 14 bps in Germany and the UK respectively, for example, and by 8 bps in Japan.

Ten-year Australian government bond yields closed October 12 bps higher, at 1.14%, despite the Reserve Bank of Australia’s interest rate cut at the beginning of the month.

Global credit

Corporate bonds eked out modest gains in October, partly reflecting ongoing strong inflows into the asset class and a limited amount of new issuance. Overall, investors seemed comfortable with September quarter earnings reported by US firms. Manufacturing-related businesses continue to face headwinds. Encouragingly, however, demand among US consumers for goods and services appears to remain intact.

Source: Colonial First State

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