Research Insights | Market Commentary August 2023
Equity markets were weaker in the month as signs of slower economic growth, both internationally and domestically, weighed on investors’ minds. The combination of volatile bond yields, economic data indicating softer economic growth, Chinese property concerns and a mixed financial reporting season all contributed to equity markets falling in August.
The US employment data showed that non-farm payrolls (a widely accepted measure of US labor strength) increased which in turn saw the unemployment rate drop to decades low of 3.5%. However, later on in the month US job openings fell to their lowest level in 2.5 years and the Job Openings and Labour Turnover Survey report (JOLTS) showed that the number of people quitting their jobs also fell indicating some fracturing within the labour market.
In China a continuation of their property crisis saw their largest private lender report a first half loss of US$6.7bn, this coupled with falling exports and weaker consumer spending prompted the Chinese central bank to lower their cash rate. Expectations are for further rate cuts and additional stimulus to help restore confidence, especially when you consider that youth unemployment in urban areas was at 20% in June, a data point that China omitted from publishing in July.
Australian annual inflation in July fell from 5.4% to 4.9% which implies that the RBA’s decision to hold rates at 4.10% in August was well considered. Cooling inflation coupled with a slowing Chinese economy and the interest rate differential between Australia and the US saw the Australian dollar down 3.8% against the US dollar over the month buying US$0.6470 at the end of the month.
Australian Equities fell by 0.70% with only Consumer Discretionary, Real Estate and Energy in the black. Hedged global equities fell by -1.9% but the significantly weaker Australian dollar led to a 1.6% gain for unhedged global equity investors
The Australian 10-year government bond yield fell by 3bps to 4.03% and the 2-year government bond yield fell by 14bps to 3.79%. The US 10-year government bond yield rose by 15bps to close at 4.11% and the US 2-year government bond yield fell by 1bps to 4.87%.
Key Developments Post Month-End
The RBA met on 5th September and decided to leave the current cash rate at 4.10% noting that “the recent data are consistent with inflation returning to the 2–3 per cent target range over the forecast horizon and with output and employment continuing to grow. Inflation is coming down, the labour market remains strong and the economy is operating at a high level of capacity utilisation, although growth has slowed".
IMPORTANT INFORMATION
RESEARCH INSIGHTS IS A PUBLICATION OF AUSTRALIAN UNITY PERSONAL FINANCIAL SERVICES LIMITED ABN 26 098 725 145 (AUPFS). ANY ADVICE IN THIS ARTICLE IS GENERAL ADVICE ONLY AND DOES NOT TAKE INTO ACCOUNT THE OBJECTIVES, FINANCIAL SITUATION OR NEEDS OF ANY PARTICULAR PERSON. IT DOES NOT REPRESENT LEGAL, TAX OR PERSONAL ADVICE AND SHOULD NOT BE RELIED ON AS SUCH. YOU SHOULD OBTAIN FINANCIAL ADVICE RELEVANT TO YOUR CIRCUMSTANCES BEFORE MAKING PRODUCT DECISIONS. WHERE APPROPRIATE, SEEK PROFESSIONAL ADVICE FROM A FINANCIAL ADVISER. WHERE A PARTICULAR FINANCIAL PRODUCT IS MENTIONED, YOU SHOULD CONSIDER THE PRODUCT DISCLOSURE STATEMENT BEFORE MAKING ANY DECISIONS IN RELATION TO THE PRODUCT AND WE MAKE NO GUARANTEES REGARDING FUTURE PERFORMANCE OR IN RELATION TO ANY PARTICULAR OUTCOME. WHILST EVERY CARE HAS BEEN TAKEN IN THE PREPARATION OF THIS INFORMATION, IT MAY NOT REMAIN CURRENT AFTER THE DATE OF PUBLICATION ANDAUSTRALIAN UNITY PERSONAL FINANCIAL SERVICES LTD (AUPFS) AND ITS RELATED BODIES CORPORATE MAKE NO REPRESENTATION AS TO ITS ACCURACY OR COMPLETENESS
