Archive for the ‘World Financial News’ Category

Economic Update – January 2018

Friday, January 5th, 2018

Within this month’s update, we share with you a snapshot of economic occurrences both nationally and from around the globe.

2018 shaping up as another good year for investors

– Global growth co-ordinated
– United States (US) tax reform
– Strong jobs growth in Australia

We hope you find this month’s Economic Update as informative as always. If you have any feedback or would like to discuss any aspect of this report, please contact your Financial Adviser.

The Big Picture

After almost a decade of economic woes around the world, all the major economies are starting to come good together.

China, as we expected, not only stayed strong, it also gathered a little pace towards the end of 2017. The US certainly gathered momentum finishing the year at a rate of 3.2% pa.
Even Europe is looking strong, but the big surprise is the way that the third largest economy, Japan, has at last put five strong quarters back to back.

When growth is co-ordinated like this, it is much harder for any individual country to fall into recession anytime soon.

But the prospects for 2018 became even better after Trump got his tax reform through at the eleventh hour. It is doubtful if analysts have yet fully digested the consequences. It may well be that macro and market forecasts will be revised upwards in the next few months.

Citi produces a ‘surprise index’ for many major countries. It is based on how often analysts’ forecasts are beaten by the actual events. The US index stands at a reading of +73 which is a six-year high. The Australian index stands at 10.9! We keep thinking things are better than they really are.

Global growth is likely to keep us well out of recession, but we are likely to continue to underperform. Our jobs creation has been strong all year – largely because of immigration. Our unemployment rate stubbornly stands at a moderately high 5.4%

The Westpac consumer sentiment index stands at just above 100, but that is only for the second month this year. NAB’s business conditions and confidence indexes however, remain consistently strong.

Major share markets did well around the world with Wall Street being the stand-out performer. But Australia didn’t do too badly after a bad reaction to various bank inquiries. The ASX 200 posted growth of over 13% over 2017 when dividends and franking credits are factored in.

There are a number of things to watch out for in 2018. The Brexit negotiations between Britain and Europe are progressing without any major problems so far. The new US Federal Reserve chairman looks set to make two or three rate hikes, while our RBA is not expected to move in 2018.

Our Royal Commission into Financial Services might cause some angst, depending how press releases are handled.

The more difficult possibility to assess is Trump’s wish to commence a big infrastructure programme. In the election campaign he was talking about a trillion-dollar deal, but that has since been scaled back to 200-300 billion dollars. With tax reform behind him, we should see some movement on this front in January.

The ASX 200 closed at the highest level since December 2007 on the penultimate trading day of 2017, and we see growth of about 5% in 2018 – but that means that the November 2007 peak is unlikely to be surpassed this coming year.

We see strong growth continuing on Wall Street in 2018. But, if analysts revise earnings forecasts upwards in January based on company tax cuts, we might see very strong growth in the first half of the year.

On the commodities front, copper, gold and oil prices did well in 2017. It would be sufficient for our resources sector to have a good 2018 if these prices just hold over 2018.

In conclusion, we see it unnecessary to take on extra risks in 2018 to chase returns. Volatility on share markets was unusually low in 2017, and that is expected to continue for the foreseeable future.

We wish you all a safe and prosperous New Year.

Asset Classes

Australian Equities

Our market was seemingly stuck in a tight range from mid-2017 but then it blasted through 6,000 at last – and it even finished 2017 above that psychological barrier.

The Resources sector led the charge in December to give the broader index a boost of 1.6% for the month.

The Financials sector was down slightly for the year, but there were outstanding double digit returns to be had in all other sectors except for Property, Telcos and Utilities.

The February reporting season is only just around the corner, so this is the time for companies to ‘confess’ if they are likely to miss their guidance for earnings. We found analysts have started revising their forecasts in an upwards direction for the last month or two. Therefore, we are expecting a good “report card” in February.

Foreign Equities

The S&P 500 index recorded another positive month in December making it 12 in a row for 2017 and the first time on record! We do not, however, think the market is over-priced by more than two or three percent.

2017 market growth has been dominated by the big tech companies. Some are looking to Amazon to become ‘master of the universe’ by establishing a major presence across a broad array of industries.

The strong Japan economy has supported its Nikkei index to record near 20% growth in 2017.

Bonds and Interest Rates

The RBA was on hold again and is unlikely to raise rates before the end of 2018. Indeed, another cut is quite possible before the next hike.

The Fed hiked rates in December, making it three for the year. Their so-called ‘dot plots’ show that they collectively expect three more hikes in 2018, but the market has only priced in two. The Fed is unlikely to want to risk too much so two is much more likely than four. US inflation is still below target.

Other Assets

Oil and copper prices were firmly higher in 2017. Iron ore prices were down on the year, but staged a very strong comeback, returning 36% from the lows experienced throughout the year.

Regional Analysis


Over 60,000 new jobs were created in November – the latest published data point – and two-thirds of them were full-time. However, the unemployment rate was stuck at 5.4%.

Around 1,000 jobs were created on each day of the year (on average), but it seems much of this was matched by immigration flows. Price and wage inflation are also stuck at below target rates. However, we at last got a better than expected growth in retail sales (+0.5% against 0.3%).

The government presented its mid-year report card (“MYEFO”) in December, which argues the deficit is better than that which had been previously expected.


China has reportedly been spotted exporting oil to North Korea which got Trump’s hackles up. But other than that, there is less reported bad news about China’s economy. Of course, any developing economy starts to slow gradually as it reaches economic maturity.

We do not see China’s economy being a problem for us in 2018.


After a bumpy ride, a tax reform bill passed through Congress giving Trump one victory for 2017.

The infrastructure programme could be even trickier to get through, as the size of it will require a public/private joint venture. That means the private sector will have a big say on which projects start first. That will put the Democrats off-side as they always want to lead with the public interest.

If the bill makes some progress in 2018, the US economy looks set for continued growth for a few years to come.


Greece finally came out of recession in December! While the European Union as a whole still has some problems to work through – notably Brexit – the general mood appears to be positive.

Rest of the World

Japan’s Q3 growth figure was revised upwards to 2.5% from 1.4%.

Article by Ron Bewley for Infocus Money Management

Economic Update August 2017

Monday, August 21st, 2017

Within this month’s update, we share with you a snapshot of economic occurrences both nationally and from around the globe.

Economic growth improves in key countries
– China economy shows strong signs of strengthening
– Australian employment data continues strength
– Rates on hold in Australia and the United States (US)

We hope you find this month’s Economic Update as informative as always. If you have any feedback or would like to discuss any aspect of this report, please contact Michael Berinson or his office.

There were some notable economic growth numbers released in July. After a few years of declining (but still stellar) growth numbers in China, the latest statistic was back up to 6.9%. The new China leadership team is about to be ushered in and the Chinese know how to throw a party. On top of that, the China Purchasing Managers Index (PMI) came in at 51.4 for manufacturing and 54.5 for services – both in the sweet spot. Throw in 11.0% for Retail Sales and 7.6% for Industrial Output and you have what Keating might call, ‘a beautiful set of numbers’.

Turning to the US, the anaemic growth in Q1 was overshadowed by the June quarter coming in at 2.6%. True it’s not the 3% that the Fed is aiming for or the 4% that Trump was dreaming of. But 2.6% is really solid. Unemployment is low at 4.4% and 222,000 jobs were created in June when only 180,000 new jobs were expected. It is true that wage growth was low at just 0.2% but you can’t have everything all at once can you?

Even Australia was looking good. We had some very nice jobs and unemployment data – against the trend of 2016. For whatever reason, the labour force data are looking better. But the RBA chimed in at the start of July saying that 3.5% is our ‘neutral’ interest rate. That is, rates should be at 3.5% when things are chugging along. Since we are sitting on only 1.5%, there are a lot of hikes in the pipeline!

It was a bit silly to advertise that opinion just now and an Assistant Governor had to come out and hose things down. Retail sales did come in at a biggish 0.6% for the month. We’re not cooking on gas but at least we are cooking again.

As we go around the world the United Kingdom (UK) is starting to struggle a little with its latest growth of only 0.3% for the quarter and Brexit looming large. Prime Minister Abe in Japan has gone from rock star status to a meagre approval rating of 29.9% in a few years. The Royal Bank of Canada bumped up rates to 0.75% from 0.5%.

So the dice are still rolling. Fortunes are rising and falling but there seems to be no basket cases anymore and there is lots of good news.

We became aware of a new expression this week. It’s been out but under the radar for a few years. It’s still worth sharing. On asking why stock markets – particularly in the US – remain strong – the new catch phrase is that it is a TINA market. Not as in Turner or Arena, but it is the acronym for ‘There Is No Alternative’. Money has to be invested somewhere when cash rates are so low.

TINA puts a safety net under markets for a while but we must be vigilant for when Tina starts singing.

So where to from her? Trump is floundering but his economy is doing well. The Australian economy seems to have stabilised. To us, it looks like a smooth ride ahead – until we see otherwise.

The current US reporting season has been unusually strong meaning that increases in earnings are supporting recent stock price strength. Can it go on? In a word, yes!

The big Tech Companies are having mixed results but they are looking strong. We should never be complacent but the second half of 2017 doesn’t look too bad at all. Perhaps we all deserve a break after the trials and tribulations of 2008 – 2015.

Asset Classes

Australian Equities

The ASX 200 was flat for the month of July. The Materials sector was the strongest on the back of some very strong commodity price movements. Healthcare took a beating at 7.5% with Utilities ( 5.3%), Telcos ( 4.3%) and Industrials ( 3.2%) not far behind. Financials (+1.2%) put in a creditable performance. A big sector rotation just took place.

Our August reporting season is just getting underway. As always, the companies’ outlook statements will be crucial for the future of our market. We have found some recent softening in broker forecasts of company earnings and dividends. At least that downgrade has resulted in our forecasts for capital gains to be only a tad under the long-run average.

Foreign Equities

The S&P 500 fared a bit better than us in July posting a solid +1.9% capital gain. The London FTSE also did well at +0.8%. Emerging Markets were particularly strong at +4.1% on the rising tide of commodity prices.

Our expectations for Wall Street are for a good finish for the year despite the strong first seven months of +10.3%.

Bonds and Interest Rates

With the “Fed” (US Federal Reserve) on hold again in July, the next chance for a hike is at the September meeting. But most forecasters are not expecting another hike this year. The odds of a rate hike by December are priced in at a little under 50%.

The Fed is widely expected to start its balance sheet repair in September. This amounts to gradually lowering the $4.5 trillion bond debt down to $2.5 trillion over a number of years. Since this policy will gradually raise long rates on its own, there is no reason for the Fed to also raise the underlying Federal Funds rate at the short end.

The RBA kept rates on hold again in July and August. The majority of pundits are expecting the next move to be up but not until at least the middle of 2018 – and possibly 2019.

Our view of needing a cut at home is on the back burner for the moment. We need a little more data to change our call. It all depends upon the next GDP growth number to be posted on September 6.

Other Assets

Commodity prices were on a flier in July. Iron ore was up +15.2%, Brent Oil up +9.8% and Copper up +6.2%. Our dollar was up +3.8% against the greenback.

The volatility index called the VIX was down 3.7% in July. This fear index is around all-time lows.

Since we are a commodity producing and exporting country, the restoration of solid commodity prices bodes well for our total exports and GDP growth.

However, not everyone wins from this sectoral rotation. Healthcare and a number of Industrials names are finding stronger headwinds after a good first half to 2017.

For example, our Healthcare sector is up +13.0% for the year-to-date including the poor 7.5% for July.

Regional Analysis


Our headline CPI inflation came in at only +0.2% for the quarter or +1.9% for the year. Since the RBA’s target range is 2% to 3%, this read gives the RBA no motive to raise rates anytime soon.

With total employment up around 170,000 in the first half of 2017 – with nearly all of them full-time jobs – we are back on track. During that period, the unemployment rate has been stuck at around 5.6% and wage growth is non-existent.


The focus in Europe is on what the implications of Brexit are for employment and trade. It will be nearly two years before we find out the full story so we cannot expect much good news from that region in the medium term.

However, the underlying economies are so much stronger than in recent times. We don’t have to waste much energy worrying about Greece and the other ‘PIGS’ countries anymore. Can you remember what PIGS stands for? Those days are gone!


The China data have been on a roll for quite a while. Without taking sides, it is hard to conclude after recent data that China is not undoubtedly doing well at the moment. Yes, there are political problems with the US and who would want North Korea as a neighbour – let alone an ally.

But what seems to be forming is a view that China has regained its role as a lead player in the world – as solid and dependable – at least in an economic sense.


Trump is hiring and firing quicker than he did on “The Apprentice” – but the West Wing is for real.

The US is facing a number of problems in a month or so but these ‘episodes’ on TV have not stopped US jobs and growth.

We don’t think anyone can reliably predict how this scenario will play out but, as annoying as the tweets and press releases are, the economy is marching on!

Rest of the World

With sanctions on Russia being on the front burner, and the woes of the Venezuelan leadership also up there on many news wires, some instability in oil pricing is likely. Both countries are big exporters.

Article prepared by Infocus Securities

Economic Update – September 2016

Monday, September 5th, 2016







Economic Update

By Ron Bewley*.  

Within this month’s update, we share with you a snapshot of economic occurrences both nationally and from around the globe.
With Brexit fears cast aside:

– United Kingdom (UK) confidence bounces back
– United States (US) Federal Reserve claims economy strengthening
– Japan ready to add more stimulus

We hope you find this month’s Economic Update as informative as always. If you have any feedback or would like to discuss any aspect of this report, please contact your Financial Adviser.

The Big Picture

It is just a year since some reports on the China stock market sell-off last August predicted doom and gloom. As we suggested at the time, it wasn’t a major problem because that market was, and is, in its infancy. The market stabilised, and it is now comfortably above those 2015 lows.

At the end of 2015, some nerves were rattled about the prospects of Federal Reserve rate hikes in the US. While occasional bouts of uncertainty continue to cloud market movements, the successive Fed meetings have gone reasonably smoothly.

In January 2016, the Royal Bank of Scotland told us to ‘Sell everything’ and some other big houses made similar dire predictions. Markets are comfortably up and selling wasn’t the answer.

Oil and iron ore prices dived in February 2016. Iron ore prices dipped below $40 but later climbed to $70. Oil was predicted by some to get down to $20, or even $10, when it was $26. Instead, prices have more or less doubled. Another ‘crisis’ averted!

And then there was ‘Brexit’, and the dire predictions that went with it. The ‘leave’ vote won, but consumer confidence jumped 3% in the UK in the first month following the referendum. Markets are stable and the pundits got it wrong again.

Of course, at some point, an event will come along that will have a medium-term adverse impact on our investments, but most of these stories are simply overblown in quiet news periods. At this point we feel that all of those ‘scare stories’ are fading into oblivion and there are no new major known issues brewing.

At home, our labour force data isn’t great, but the mid-year fall in full-time employment seems to have turned around. Unemployment is stable at 5.7%. Our Reserve Bank is expected to cut rates again – from 1.75% to 1.50% sometime this year – but that is more to align our rate with the rest of the world rather than a reaction to avert major issues at home.

News in August was dominated by the Olympics. Australia was disappointed but ‘Team GB’ beat all expectations. There are big lessons for economic management to be learnt from these results.

Australian Olympic success was at a low in Seoul, 1988. Government funding was pumped in with increasing success to match – until, that is, at Beijing and after.
Great Britain (GB) hit its nadir in 1996 at Atlanta, with only one gold medal being won. The national lottery was born with substantial taxes going to sports’ funding.

In both cases it took time for athletes to respond, but pumping money into a venture alone is not an investment. Just like with migrants, the expression “The first generation makes it, the second builds on it, and the third loses it” might apply to economies and sports alike. But our athletes might now be doing as well – it’s just that others are rapidly improving.

Importantly, Australia was reported to have concentrated funding on our traditional sports. GB, on the other hand, looked for opportunities in sports they had not previously been good at. GB’s plan seems to have thrown up many unexpected successes.

The reaction to the GFC was for governments to cut back on fiscal spending around the world. Now we need well-tailored programmes to start the next phases of growth. Not pink batts, but spending on considered infrastructure projects and the like could be what we need now. But with our government system living on minority leadership for too many years, it is difficult to see from where such a programme will come.

In the meantime, growth might be a little below par but good enough. A shot in the arm for infrastructure could well be the start for a return to our desired long-run growth path.

Asset Classes

Australian Equities

The ASX 200 did lose 2.3% in August, but that followed a massive +6.3% gain in July. Virtually all sectors lost ground in August but market volatility remains reasonably low.

After reporting season in August our view of the fundamentals remains strong, we expect the 2016/17 financial year to be strong. The calendar year-to-date for 2016 posted a gain of +5.6% including dividends.

The high-yield sectors of Financials, Property, Telcos and Utilities continued to seriously lag behind the other sectors in 2016 y-t-d including dividends. Indeed, capital losses in high-yield have more than wiped out dividend payouts. The total returns of the ‘other’ sectors have exceeded +14% y-t-d.

Foreign Equities

Wall Street hit some new all-time highs in August. The VIX fear index reached quite low levels suggesting markets are quite settled even if August was not a strong month for markets.

With a rate hike in the US unlikely before December, only the Presidential election seems likely to interfere with a smooth finish into the end of 2016.

Bonds and Interest Rates

The RBA kept rates on hold again in Australia. The Fed Reserve’s second-in-command caused some volatility with his comments, shortly after Chair Yellen made her views known. While Yellen saw the chance of a hike strengthening with good economic data, Fischer went further putting September back on the table. December is still our call for the first hike.

Other Assets

Oil prices have seemingly stabilised on talks between OPEC and Russia. At current prices, oil is too cheap to warrant shale oil to come back on stream in the US and too high to cause major concerns going forward.

The VIX volatility – or fear – index reached a low for 2016 during August. Our dollar did vary somewhat over the month but the change on the month was relatively small.

Regional Analysis


On the face of it our employment data grew strongly, but full-time employment fell while part-time employment did the work. The unemployment rate was steady at 5.7%.

Trend full-time employment – the official preferred method – has started to pick up – possibly because of the earlier rate cut.


The month started reasonably well with the Purchasing Managers Index (PMI) at 49.5 for manufacturing – which is just below the break-even 50 level. The services version of the PMI continues to be well above 50 as the domestic economy takes over from infrastructure expenditure.Mid-month retail sales and industrial production did miss forecasts by a fraction but not enough to worry markets.


Janet Yellen talked up the strengthening US economy at the annual Central Bankers’ conference in Jackson Hole. There is no doubt that employment data has bounced back strongly from the earlier mini-slump. But two good numbers are not enough to eradicate all discomfort.


The Brexit vote won at the end of July. August Retail Sales surged at +1.4% against an expected +0.1%. UK confidence also surged from a three year low to 109.8 from 106.6. With Olympic success as well, it seems the UK has side-stepped the issues that some worried about earlier in the year.The Bank of England did cut its rate at the start of August and also pumped in some unexpected monetary stimulus.

Germany’s GDP came in at +0.4% for the quarter smashing expectations. There are also other pockets of mild success. Brexit will happen slowly so trade deals can be renegotiated far before trade becomes an issue.

Rest of the World

Japan can’t win a trick, as they just recorded another month of deflation. Japan is pledging to continue to stimulate the economy as required.Japan’s problem is its falling population. Many countries, such as ours, would also look a little glum if populations were not growing!

*Ron Bewley (PhD,FASSA) – Director, Woodhall Investment Research

This article is brought to you by Infocus.

Important information

This information is the opinion of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL and Australian Credit Licence No. 236523 trading as Infocus Wealth Management and may contain general advice that does not take into account the investment objectives, financial situation or needs of any person. Before making an investment decision, readers need to consider whether this information is appropriate to their circumstances.

Volatile and weak sharemarkets

Tuesday, July 12th, 2016

Graph being drawn

Cash rates and bond yields globally are low and are likely to remain lower for longer, while equity market returns over the 2016 fiscal year have been generally poor. In this article we look at what’s been driving weaker returns and consider the outlook for returns over the medium term.

Sharemarkets were volatile during 2015/16 and delivered poor returns for the period. Sharemarket performance was adversely impacted by a number of concerns, including falling commodity prices and lacklustre global growth. Of particular note, economic growth in China has been weaker than expected; while in Europe, growth has been so sluggish that policy makers in many European countries have turned to negative interest rates to stimulate growth. In June, Britain’s decision to leave the European Union, or ‘Brexit,’ also contributed to market volatility and pushed most global share markets lower.

Australian equities ended the financial year with an annualised return of 0.6%. International sharemarkets delivered an annualised return of -1.4% on a fully hedged basis.

On the positive side, Australian listed and global listed property continued their positive trend, benefiting from the chase for yield, delivering annualised returns of 24.6% and 18.7% respectively. Australian and international bond returns also delivered solid positive returns.

Return on assets

Past performance is not a reliable indicator of future performance
Source: Bloomberg, AMP Capital, as at 30 June 2016; Australian shares: S&P ASX 200 Accumulation (AUD); International shares (unhedged): MSCI World ex AU Accumulation (AUD); International shares (hedged): MSCI World ex AU Accumulation Hedged AUD; Australian listed property: S&P ASX 200 A-REIT Accumulation; Global listed property (hedged): FTSE EPRA/NAREIT Developed Rental Hedged AUD; Global listed infrastructure (hedged): Dow Jones Brookfield Global Infrastructure Net Accumulation Index Hedged (AUD); Australian bonds: Bloomberg AusBond Composite 0+ Yr Index; International bonds (hedged): Barclays Global Aggregate Index Hedged AUD; Cash: Bloomberg AusBond Bank Bill Index.

Looking ahead – expect lower for longer

With cash rates and bond yields already so low, sharemarkets are likely to be a key source of return for investors.

However, as global growth and inflation are likely to remain subdued for some time, investment returns are likely to remain relatively muted. We anticipate that single-digit super returns are likely over the next few years.

Keep your focus on what really matters

With market volatility expected to continue in the near term, investments in well-diversified, actively managed portfolios will help to smooth out returns.

We expect active positions in the Australian dollar will be important going forward, but so too will investment in alternative assets, such as infrastructure, absolute return strategies and private equity, which have a low correlation with mainstream markets, such as shares.

Final thoughts

Recent market volatility has made it more important to review your investments and ensure they are still delivering against lifestyle and retirement objectives while being mindful that long-term – not short-term – performance needs to be the focus.

Article by D Alliston – Head of Multi-Asset Portfolio Management AMP

Brexit – “Breaking up is hard to do”

Monday, June 27th, 2016

Global insight

By Ron Bewley*. Brought to you by Infocus

History and the vote
When Neil Sedaka had his 1962 hit “Breaking up is hard to do” it was only four years after the signing of the Treaty of Rome – from where the European Union (EU) was born. France strongly objected to Britain joining for many years, which was the catalyst for many boys in secondary schools across England to question why they had to learn French.

So with Brexit winning the referendum on Thursday, did Britain get what it wanted or needs? We thought the bookies would have got it right with a ‘Remain’ win. Even Boris Johnson (Tory MP and former Lord Mayor of London) and Nigel Farage (MP and Leader of the UKIP party) – the two most prominent “Brexiteers” – didn’t think they would make it on the morning of the referendum – but they did. With the vote at about 48% : 52% and a total casting vote of about 70% (voting is not compulsory in Britain), the people who didn’t vote came in a very close third in the race: 33.6% = 70% x 48% for ‘Remain’; 36.4 = 70% x 52% for ‘Brexit’; and 30% = 100% – 70% didn’t vote)!!

This was not a resounding victory, but it was enough to start the exiting process.

Many of us were glued to the telly all day on that Friday, June 24th. Our reaction changed markedly as the results flowed in. Our first reaction was unrest, because the consequences of leaving hadn’t really been discussed in the media. But we felt calmer as the day progressed. The shock subsided.

So why did Europe want Britain to stay as much as they implored? They must be getting a better deal than Britain! If they trade with Britain now, why wouldn’t they want British goods when they are ‘sans Europe’?

Changes ahead
Of course Britain may stop making Airbus wings in North Wales which then have to navigate canals, the River Dee, the Irish Sea and the English Channel, and more canals to be delivered to Toulouse, and stuck on the bodies of planes. But Britain won’t have to subsidise all of those small farmers any longer in France, Greece and elsewhere. Britain won’t have to pay for our euro MPs to live on the gravy train in Brussels. It is a nontrivial problem to solve and the answer is not known by anyone – yet!

The Bank of England and the European Central Bank have stated they will pour oil on any troubled financial waters. This is certainly not a Lehman Brothers or GFC type event. It is also clear that it will take up to two years for Britain just to exit Europe – it doesn’t change straight away. Indeed, the full transition to renegotiate trade deals could take up to a decade.

So what are the pros and cons? On the downside, the biggest risk is what will happen to London as a financial centre. That could be a big down-side and it could also affect Australian banks in their funding (yes – we borrow from the world, and not the RBA for home loans, so that’s why mortgage rates shouldn’t simply shadow the RBA rate).

But Britain will no longer be told how to regulate its economy by Europe. A Cornish pasty can once again be ‘crimped’ on the top, and not just the side to be properly classified as a “Cornish” pasty. And they can again grow any variety of apples they want! They can even take control of the style of sausages they make and sell!

Continental Europeans freely working in Britain may have to go home. Economic refugees in Britain would not as easily get government benefits. Britain can regain control of its borders. People will have to show their passports to travel and get visas to work – just as young Australians do who work in Britain now, and vice versa.

Australia has recently made important bilateral trade deals with the likes of China. It can now make some with Britain without having to convince the other 27 counties that the same rules should apply to them. For example, one deal with Europe was recently scuppered because the Italians didn’t like our proposed anti-dumping laws for their tinned tomatoes.

Domino effect
But who will be the next cab off the rank? Britain joined the then European Economic Community (EEC) when there were just a handful of countries “in Europe” – then some peripheral countries joined – then the far eastern, poorer European countries such as Bulgaria and Romania joined in 2007.

We don’t think Britain would ever have joined if there was a common currency and 27 other countries. The current EU is so different from its forerunners, and is largely led by Germany – and to some extent France – and Brussels.

The EU has a common currency, the euro, across 19 of the 28 countries, but no common fiscal policy. That is, unlike in Australia where Canberra controls much of taxing and spending across the separate states, 28 governments in the EU have no strict common goals. Hence, we got problems with Greece and its debt problems. Greece couldn’t devalue, as it used to without leaving the euro and the EU subsidies it gets.

Scotland is now talking about having a second bite at being a separate nation after Brexit. Scotland largely voted to ‘Remain’ in Europe – as did the south east of England – but the more working class north of England, swamped the ‘Remain’ votes in the single aggregated British vote.

And there has been talk of a referendum to decide where, if anywhere, should be the border between the Republic of Ireland and Northern Ireland (in the UK).

Denmark and others who are not in the common currency but in the EU might be watching closely. If Britain starts to look better off, why wouldn’t they follow suit?

The EU morphed into a grab-bag of unlikely bedfellows. The initial reason for making the union was almost certainly to give Germany and France a voice on the world stage. But they needed to add some chums to make it seem like a real union. Shades of 1989, and the falling of the Berlin Wall are now so close.

Stock markets
Markets usually over-react and they probably have done so this time. It looks like there will be big buying opportunities ahead, but not in our banks until we better know what will happen in that space.

We couldn’t help but notice that the falls on the ASX 200, the London FTSE and the S&P 500 on Friday were all around ?3.5%. But over the week the ASX 200 was only down ?1.0%. We got a bit ahead of ourselves in predicting a ‘Remain’ and then unravelling some positive momentum.

The London FTSE was actually up +2.0% for the week, even after Friday’s big sell-off! The S&P 500 on Wall Street was down only ?1.6% for the week.

The Frankfurt Dax was only down ?0.8% for the week after tumbling over ?6% on Friday night.

With our SPI futures (an indicator of how the ASX 200 is likely to open on Monday as it is traded overnight) up +3 pts for Monday, it is possible order could quickly return to markets.

Football (soccer)

England lives to fight another day in the Euro 2016 football competition. England faces the mighty Iceland at 5am on Tuesday in the last 16. England has only played them once before and England won 6-1. But has Iceland improved or did the other teams just capitulate in the group stage matches? We hadn’t really thought of Iceland as being in Europe. Are they in the EU? No! And Australia entered Eurovision and we are certainly not in Europe.

But if England gets through, it will probably meet France in the quarters – and in the unlikely event England progresses to the semis, it then faces its arch-rival in football, Germany. For England to possibly face France and Germany only days after Brexit, the mettle of these footballers will surely be tested.

What to watch for

Simply watching the finance news on TV might not give you the information you really need. The media has a seeming predisposition to focus on bad news and draw a long bow when connecting some events.

The end of the financial year on June 30th usually brings with it some extra temporary volatility on our stock market as fund managers ‘window dress’ their portfolios to look as good as possible for reporting purposes.

Our general election on July 2nd could cause some volatility in its own right depending on how the voting goes. A hung parliament is the worst result. Our government – of whichever political flavour – needs the power to enact good economic policy.

The Reserve Bank of Australia deliberates on interest rate settings on July 5th. It might cut rates. It might change its interpretation of how the economy is travelling. So more volatility is possible!

On July 14th (Bastille Day!), our June Labour Force data will be released by the Australian Bureau of Statistics. The recent trend in full-time employment has been falling to the extent that changes in f/t employment have been negative for four consecutive months.

No one really seems to be talking about this – except us at Infocus for the last few months – so if we get another fall and it gets picked up? You’ve guessed it – more volatility.

And in August most listed companies on the stock exchange report their final or half-year results. Since companies must give guidance about changes in performance, many companies upgrade their prospects in July – the so-called ‘confession season’.

Even without Brexit, we would expect a few weeks of heightened uncertainty in our markets. The fundamentals are quite strong – but not brilliant. We anticipate looking back on June and July later in the year, as another blip but no more.

The UK Prime Minister has flagged he will leave office in a couple of months and Boris Johnson, the enigmatic former Mayor of London, will probably succeed. He is a very smart, charismatic man who is likely to steer Britain through change as good as anyone could.

We need to watch for any of the big international banks, like Morgan Stanley and Deutsche, to see if they feel a need to relocate some of their offices, etc.

And at home, the only likely downside to the Brexit seems to be an impact of funding for our banks. Perhaps we can strengthen our relationship with Britain. That should not stop us continuing to have good relations with continental Europe.

Of course, dual citizens (Australian and Continental European) might be less able to go and work in Britain. But plenty of Americans holiday in Britain each year without being EU members.

So it’s time to take a deep breath, put the kettle on and have a cuppa to settle the nerves – just as they are probably doing across Britain right now.

*Ron Bewley(PhD,FASSA)– Director, Woodhall Investment Research

Important information

This information is the opinion of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL and Australian Credit Licence No. 236523 trading as Infocus Wealth Management and may contain general advice that does not take into account the investment objectives, financial situation or needs of any person. Before making an investment decision, readers need to consider whether this information is appropriate to their circumstances.

Monetary Policy Decision

Wednesday, May 4th, 2016

Markets fluctuatuations

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.75 per cent, effective 4 May 2016. This follows information showing inflationary pressures are lower than expected.

The global economy is continuing to grow, though at a slightly lower pace than earlier expected, with forecasts having been revised down a little further recently. While several advanced economies have recorded improved conditions over the past year, conditions have become more difficult for a number of emerging market economies. China’s growth rate moderated further in the first part of the year, though recent actions by Chinese policymakers are supporting the near-term outlook.

Commodity prices have firmed noticeably from recent lows, but this follows very substantial declines over the past couple of years. Australia’s terms of trade remain much lower than they had been in recent years.

Sentiment in financial markets has improved, after a period of heightened volatility early in the year. However, uncertainty about the global economic outlook and policy settings among the major jurisdictions continues. Funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.

In Australia, the available information suggests that the economy is continuing to rebalance following the mining investment boom. GDP growth picked up over 2015, particularly in the second half of the year, and the labour market improved. Indications are that growth is continuing in 2016, though probably at a more moderate pace. Labour market indicators have been more mixed of late.

Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.

Monetary policy has been accommodative for quite some time. Low interest rates have been supporting demand and the lower exchange rate overall has helped the traded sector. Credit growth to households continues at a moderate pace, while that to businesses has picked up over the past year or so. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.

In reaching today’s decision, the Board took careful note of developments in the housing market, where indications are that the effects of supervisory measures are strengthening lending standards and that price pressures have tended to abate. At present, the potential risks of lower interest rates in this area are less than they were a year ago.

Taking all these considerations into account, the Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.

Media and Communications
Secretary’s Department
Reserve Bank of Australia

Media ReleaseStatement by Glenn Stevens, Governor

Are you a Small Business owner? If so, are you SuperStream compliant?

Wednesday, May 4th, 2016

hand holding bag of money

The SuperStream Data and Payment Standard introduces a streamlined method of sending payments and associated information electronically within the superannuation system.

The objective is to standardise the way employers pay super contributions so that information can be transmitted consistently across the super system – between employers, super funds, service providers and the Australian Taxation Office (ATO). It allows employers to make all their super contributions in a single transaction, even if they’re going to multiple super funds.

If you or your clients are an employer with 19 or fewer employees the SuperStream standard must be met by 30 June 2016 (assuming the business is not already compliant).

The ATO has begun contacting businesses with 19 or fewer employees about SuperStream. You or your clients may receive a reminder email, SMS, or letter from the ATO about the importance of getting ready for SuperStream by the 30 June 2016 deadline.

Larger employers should have been using SuperStream since 31 October 2015.

The link to set up your account with the Superannuation Clearing house is:

Excerpt from article published by AIA

How will the Budget affect you?

Wednesday, May 4th, 2016

Hand holding dollar notes

This was not your typical Budget. Instead, the Treasurer, Scott Morrison, attempted to build an election platform for the Government and overall, this Budget is quite fair to most people. While there were certainly some major alterations to superannuation, in other areas, such as Centrelink, there were only minor changes.

We’ve summarised some of the key points from the Budget below, but remember these are proposals only and are subject to the passing of legislation, and should be discussed with your Financial Adviser.

  • Introduction of a $500,000, lifetime, non-concessional superannuation contribution cap.
  • A new transfer balance cap of $1.6 million on superannuation that can be held in pension phase.
  • Changes that reduce the tax-effectiveness of transition to retirement strategies.
  • Reduction of the superannuation annual concessional cap to $25,000, regardless of age.
  • Introduction of ‘catch-up’ superannuation concessional contributions for those with super balances under $500,000.


Changes to super were wide-ranging and aimed to help those on lower incomes while trimming some of the more generous concessions available to those on higher incomes.

Lifetime cap on non-concessional contributions

The Government is replacing the previous cap of $180,000 per year (or $540,000 over 3 years under the ‘bring forward’ provisions) with a lifetime cap of $500,000. This will be indexed, presumably on an annual basis. While this change is effective from Budget night, importantly it is also retrospective as it will take into account all non-concessional contributions made since 1 July 2007.

If you’ve already contributed more than $500,000 during this time, the extra amount will not be taxed but you won’t be able to make any future contributions. If you breach your lifetime cap, you can have the excess refunded to avoid penalties.

Reduced concessional contributions cap

The Government intends to reduce the annual concessional contributions cap to $25,000 for everyone, from 1 July 2017. The cap is currently $30,000 for people under age 50 and $35,000 if over age 50.

Concessional contributions catch-up

For those people who have a super balance under $500,000, the Government proposes to allow them to make ‘catch-up’ concessional contributions. The aim of this change is to help people who have irregular work patterns, such as, contractors, the self-employed or women, to grow their super. Unused concessional cap amounts can be carried forward on a rolling basis over a consecutive five-year period. Under the current system, a strict application of annual concessional contributions caps means that those people with irregular work patterns are at a distinct disadvantage, so this addresses that issue. The changes will become effective from 1 July 2017.

Transition to retirement strategies less effective

The tax exemption on earnings in a transition to retirement (TTR) pension will be removed, thereby reducing the tax-effectiveness of a TTR strategy. Withdrawals from TTR pensions will also not be able to be taxed as lump sums. If you are over 60 you will still benefit from receiving tax-free pension payments.

New limit on amount transferred to retirement accounts

In a move to limit the amount of tax-free earnings on your super, the Government intends to place a cap of $1.6 million on the amount you can transfer into your pension account. Any future earnings generated in your pension account will not be affected, even if the balance goes over $1.6 million.

Those people already in retirement will need to reduce the balance of their pension account to $1.6 million by 1 July 2017. The $1.6 million cap will be indexed in $100,000 increments in line with the consumer price index. If you breach the limit then the excess will be taxed at the highest marginal tax rate, a very harsh penalty!

Removing the work test

The government has decided to remove the work test for people aged between 65 and 74 who want to make voluntary superannuation contributions. The advantage for those affected is that they no longer need to satisfy a work test and can receive contributions from their spouse. This measure also applies to small business owners who often want to contribute the proceeds from their business after age 65. This change takes effect from 1 July 2017.

Tax deductions for personal super contributions

This change means anyone up to age 75 can claim an income tax deduction for personal concessional super contributions up to the proposed $25,000 cap. This change abolishes the 10 per cent self-employed test and benefits people who can’t take advantage of salary sacrifice.

Lower income threshold captures more high income earners

This change means that higher income earners will now have to pay an extra 15 per cent on their concessional contributions when their income is over $250,000, down from $300,000 previously.

Assistance for lower income earners

There are two initiatives that assist lower income earners. The first is the Low Income Super Tax Offset, which provides a tax offset to the super fund of the member of up to $500 and effectively refunds the contributions tax that the member’s super fund has already paid. This only applies for those who don’t earn more than $37,000. The second initiative increases the eligibility for the Spouse Tax Offset so that the spouse who receives the contribution can now earn up to $37,000 instead of only $10,800, as was previously the case.

Anti-detriment provision removed

Anti-detriment payments used to effectively refund the superannuation contributions tax paid by a member who died. This increased the lump sum death benefit paid to spouses, former spouses and children. The government wishes to remove this provision because it reduces the amount of tax they receive from super funds. This change will be effective from 1 July 2017.


Support for unemployed young people was increased with the announcement of a program to encourage them to explore the potential of self-employment, while offering subsidies for businesses to employ young people. Additionally, from 1 October 2016, job seekers will enter the Work for the Dole phase after 12 months of participation in ‘jobactive’, instead of the current six months.


To address bracket creep, the government has proposed an increase in the 32.5 per cent personal income tax threshold from $80,000 to $87,000. Business also benefits, with a proposed reduction of the company tax rate to 25 per cent. This new rate will be phased in depending on the size of the company or its turnover.

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The Big Picture

Friday, April 22nd, 2016


If you feel confused by recent events in financial markets, you are certainly not alone. But, as we tried to convey in recent Economic Updates, some people deliberately put out bad news to grab headlines; some are manipulating markets behind the scenes in short-selling and the like; and calm, informed analysts and commentators get crowded out by the other two groups.

Now that the Quarter One (Q1) ‘volatility cluster’ is behind us we can say we saw what happened. At the time, we could not be certain but – as they say in courts of law – for us it was beyond reasonable doubt.

Whatever was the catalyst – probably the United States (US) Fed rate hike in December or it was just ‘the time was right for a correction’ – commodity prices nose-dived to unsustainable levels in Q1.

When the price of oil got down to the mid 20’s some big houses were calling $10 and $20. But prices jumped to around $40 and stabilised. Iron ore prices also plummeted and bounced back as hard. In fact, on March 8th, the price of iron ore had its best day ever – up +19% in one day!

The calls for a hard landing in China and a recession in the US have come and gone. They will come back again one day and someone will listen – but not us unless there are sound reasons for such calls.

The moral of the story is simple. Events like these happen from time to time so long-term investors should be positioning their portfolios before such events, and then sit tight. The whole point of these ‘squeezes’ is what we call ‘shaking the tree’ in the industry. You shake the tree so some fruit falls and someone picks it up to their benefit. In finance – some force prices down to get people to sell in fear and panic so that they can buy cheaply.

So where is the world heading? It’s fine but not great – just as it was late last year. We discuss the details in the ‘Regional Section’ below. Let’s just focus on the big game in town here.

The Prime Minister got the new Senate voting procedures through both Houses and then flagged a possible election and double dissolution for July 2nd. As we wrote in 2013 the voting procedures needed to change and now they have. People will now get the people they vote for and not those that did backroom deals with almost no first preferences. It was never to Australia’s advantage (whoever won majority) that a clutch of micro parties had to be placated to get any business done in parliament. We are back on track.

But the budget is now to be on May 3rd and the election looks like July 2nd. That means the Reserve Bank is unlikely to change rates at those times. In fact, it now looks like there can be no rate cut until around August/September.

On top of that the US Fed’s talk and US data have pushed back previously expected rate hikes probably to December if not later. These interest rate scenarios amount to a massive change in policy just since last month’s Economic Update! We think this means that the Australian economy will be a little more sluggish than we previously expected it to be.

In summation it is important to understand your investments in good times so that you don’t have to sell in bad. Unless you are a trader it is best to be calm when headlines get gloomy.

Asset Classes

Australian Equities

The ASX 200 had a bumper month as it gained +4.1% in March. But that was not enough to put the market in the black for the year-to-date. We are still down ?4.0% while Wall Street is up.

Despite the big sell-off near the end of the month for the big banks, that sector led performance over the whole month at +6.3%. The resource sectors also did well with +5.3% for Energy and +5.5% for Materials. At the other end of the spectrum the normally robust Healthcare sector fell by ?0.5%.

Importantly, volatility has subsided to normal levels. Given that we estimate that the market fundamentals strengthened over March but that we have the market a little underpriced, April could also be good for investors.

Foreign Equities

The S&P 500 gained an impressive +6.6% over March but the Shanghai Composite (China) index led the way with a gain of +11.8%.

The VIX ‘fear’ index for Wall Street has fallen to below average levels suggesting that investors are quite relaxed about the future direction of that market.

Bonds and Interest Rates

The Reserve Bank of New Zealand cut rates again by 0.25% in March. But, at 2.25%, New Zealand still has the highest rate in the developed world. We are next at 2%!

At home, the chance of a rate cut by June has been priced down by the markets. The market now has a cut at 30% compared to 60% a month ago. Political considerations make the next move unlikely before the mooted July election.

The US Federal Reserve changed its rate outlook at the March meeting. Last December, when it first hiked in nearly a decade, its ‘dot plot’ representation to the media suggested four hikes this year totalling 1.0%. The March version now has only two hikes for 2016 but again the market thinks that is optimistic. The market consensus has just one hike in December if any at all this year.

Other Assets

Iron ore prices are up +12% over the month and seemingly stable. The power play by the big miners to squeeze out smaller miners seems largely over.

Oil prices too have stabilised and Brent oil is up +12.5% on the month. OPEC is scheduled to meet again on April 17th with Iran to thrash out deals to stabilise prices further.

The price of gold was flat but our dollar appreciated +7.2% against the US dollar in March.

Regional Analysis


Trend unemployment continues to improve but at a very slow rate and trend employment growth has been strong and steady. But here, as around the world, improving labour markets are not resulting in wage or price inflation.

Our overall economic growth – measured by the growth in Gross Domestic Product – came in unexpectedly high at 3.0% for 2015. But digging deeper, the headline number was a little above trend but some of the components were less robust.

Our score card is the same as it has been for months. A rate cut or two would help. A budget that paves the way for solving the long-run problems we face would also really help. There is no impending cliff from which to fall – nor is there a simple solution to our current situation. We will probably jog along at this pace for the rest of the year.


It seems that the China doomsayers have retreated into the shadows but they can easily return unless data get really strong. So far China is much stronger than most thought a month or two ago. Indeed the March Purchasing Managers’ Index (PMI) came in at 50.2, or expansionary territory easily beating expectations of 49.3 and following February’s read of 49.0.

The China policy makers have set a range of 6.5% to 7.0% for growth over the next five years. China is also making overtures in the form of stimulus. China says there is no hard landing and we can’t find any evidence of one. At last, the China economy looks pretty safe.


The US jobs data reported in March were very strong. There were 242,000 new jobs when only 19,000-195,000 were expected. But, importantly, 242,000 jobs were not big enough to make an interest rate hike likely any time soon.

The Fed Chair, Dr Janet Yellen, has taken two of the four mooted rate hikes from last December off the table. And then she may have even taken another off in a speech later in March.


Obviously the Brussels’ bombings dominated March news in Europe and around the world. Sadly these incidents will not go away any time soon but, fortunately, they do not seem to dent market performance and economic conditions.

The so-called ‘Brexit’ referendum slated for June 23rd looks line ball when the UK will determine whether or not it should stay in the EU. Migration issues are front and centre – as we wrote about last year when Germany’s Chancellor, Angela Merkel, wanted to embrace all immigrants. Now countries are reportedly planning to send back 80% of immigrants because they are not ‘proper’ refugees. There is a lot to sort out in that part of the world.

The UK sugar tax caused some interest. In their recent budget they stated they are to tax sugar content in drinks and food in a bid to help health. They just happen to get a nice tax haul as a bonus!

Rest of the World

After a very poor run for nine months into the end of January, Emerging Markets have bounced back strongly. Indeed, the markets’ index grew +8.2% in March.

An article by Infocus Securities

Economic Update – February 2016

Monday, February 22nd, 2016

Summary – Article By Ron Bewley.

Within this month’s update, we share with you a snapshot of economic occurrences nationally and from around the globe. A bad start to 2016… – The fundamentals are still strong – But some unfortunate one off events clouded January’s markets – February reporting season will reveal all! We hope you find this month’s Economic Update as informative as always. If you have any feedback or would like to discuss any aspect of this report, please contact your Financial Adviser.

The Big Picture

The hope many of us felt for markets on New Year’s Eve dissipated in the first week. But January ended so strongly here, Wall Street and elsewhere. So what is going on?
It was largely an accidental coincidence of several things that separately may have had little impact. The economic questions were around China (its stock market, currency and economic growth); US economic growth; oil prices; and interest rate expectations. Each of those is worthy of much consideration but, on top of those issues a number of other events muddied the waters: North Korea’s nuclear testing; IS terrorism; Iran’s sanctions being cleared; Saudi Arabia and Iran over executions; and attacks on the embassy in Tehran.

And the elephant in the room was the length and stability of the multi-year bull-run on Wall Street. Some were expecting a correction just because they hadn’t had one for ages. With that sentiment, markets can easily overshoot when innocuous missiles are thrown at markets. Well they’ve now had that correction so we can move on!

Let’s start with China. Growth has been questioned in some quarters but China just announced not only a strong month for iron ore imports, but a record! RIO backed this up with Q4 iron ore shipments up 11%. Treasury Wines share price went through the roof when it reported its increased exports to China.

China growth will hopefully continue to fall gradually as they move from a government-funded infrastructure economy to more of a capitalist economy like ours. All developed countries have been through periods like China is now experiencing.

Of course their stock market being closed twice in one week because of sharp price movements didn’t help the uninitiated – but the explanation was so simple. The market was closed the first day ‘circuit breaker’ rules were introduced for the first time ever. Everyone admits that the rules were too sensitive and caused the market falls rather than helping market stability. Those rules were quickly shelved.

And the China currency? They are moving from being pegged to the US dollar to a system referencing a basket of the currencies of its major trading partners. The problem here was China not communicating its strategy well enough, rather than doing something people shouldn’t like.

US economic growth just came in at 2.4% for 2015 and +0.7% for Q4. Their unemployment rate is 5.0% which is just a tenth above what the Federal Reserve (Fed) considers full employment to be. Calls for a recession any time soon seem to be the results of underemployed analysts trying to establish a profile for themselves.

And oil? The real experts acknowledge that a sustainable price for oil is around $50 – $60 / barrel. Any higher and shale oil in the US will be back on stream; any lower and countries go bankrupt. But OPEC has been playing games with the US over shale oil and speculators have been exacerbating the situation.

When Brent oil got down to $26 in late January, some were calling for $10 of Brent oil – a fall of around a further 60%. In a few days Brent jumped up over +30%!
But the Fed has been caught out on interest rate hikes. They predicted four hikes during 2016 at their last press conference but markets are pricing in none or one. There is no rush.

For those of you coming back from a good long summer holiday – welcome back – you didn’t miss anything important on the markets – just froth and over-reaction!

Asset Classes

Australian Equities
The ASX 200 was down 5.5% in January after being up +2.5% in December. But this turbulence was not like that last August. Back then the market fell on statistics like the VIX fear index were, which was much worse than that in January. Resource stocks and Financials bore the brunt of the negativity in January but no sector improved by more than +1.0%.

Importantly, our indicators of potential long-run capital gains improved over the month. We have the market under-priced by about 6% so there could be some strong gains sometime soon.

Reporting season by listed companies is about to start. Since a number of downgrades have been reported in resources and retail stocks, much of the bad news is behind us.

Foreign Equities
Our market, although down, performed well compared with many of the big overseas markets. The world index was down 7.8%.

China’s “Shanghai Composite” index continued to lose ground as the heavy gearing encouraged by the government in late 2014 and in 2015 was unwound.

The China regulator brought in ‘circuit breakers’ that closed the market for 15 minutes if the index fell by 5% and closed it for the rest of the day if the index fell by 7%. These limits were far too tight for a volatile index like the Composite. The more stable US market only gets closed for the day if its index falls 20%.

Arguably, the introduction of the circuit breakers for the first time ever in January caused the shutdown on day one and the next. When the breakers were removed the market settled down.

Bonds and Interest Rates
Japan spiced up the cash market at the end of January by flagging negative interest rates, more monetary stimulus and a prediction of 2% inflation in two years after decades of deflation.

The Fed suggested last December that it might hike rates four times in 2016 (March, June, September and December) but the market doesn’t believe them. It seems more like one or none. There is no need to rush increases and the last thing anyone would want is for the Fed to hike rates and then be forced to reverse the decision in an untimely fashion.

At home the RBA did not meet in January. The odds of a cut this year are falling but one cut is still possible. Inflation did pop up a bit in the last read so the RBA might want to wait a few months to assess the situation before acting.

Other Assets
Iron ore and oil prices seemed to have stabilised – at least for the moment. There is talk of co-operation between Russia and OPEC over supply limits but, apparently, enacting such a move would be difficult for technical reasons. With Iran being allowed to export oil again after nuclear-related sanctions, there is downward pressure on oil prices. Brent oil was up +15% on the month!

Iron ore prices have been above and below $40 / tonne during January. Vale, the big Brazilian miner, is reportedly having difficulties with pricing and that might help Australian miners.

A number of other commodity prices bounced back at the end of January. Was January just the month we had to have to shake out the cobwebs?

Regional Analysis

Our jobs data remained strong – against market expectations. It is now over a year since unemployment peaked at 6.3%. Jobs growth continues to be solid.
We are fast approaching the budget and the government is, as is usual, airing some options to test market sentiment. Some are questioning our AAA rating. As we have been writing since the May 2014 budget, we do have a serious problem to tackle. We are not currently in trouble but we will be if we do not start doing the right thing soon.

China’s GDP growth for 2015 came in at +6.9% just short of the target +7%. China has announced that its target growth rate is now 6.5% to 7.0%. Its trade data were much, much better than expected.

The China Purchasing Managers Index (PMI) for manufacturing at 49.4 shows that the industry expects continuing strong growth but at a slightly lower rate (as the PMI is below 50). The PMI for services at 53.5 shows continuing expected strong growth but at a more rapid rate.

Following the December rate hike – the first in nearly a decade, US jobs data came in particularly strongly. Unemployment is only 5.0% compared with the Fed’s estimate of full employment being 4.9%.

The latest GDP growth data did come in a bit softer than the quarter before but more or less on expectations.

The Presidential election, set for November, is hotting up. The usual smear campaigns are starting on both sides.

Sweden is considering sending a significant number of refugees back and others are seeking to claim expenses for settlement back from the ‘asylum seekers’.

Angela Merkel – the German leader – has suffered in popularity following her desire to take in an almost unlimited inflow, and has had her previously massive support cut to about 40%. She has now stated she expects most to return home when the troubles end. With the huge death toll in Damascus from bombings overnight, that end doesn’t like coming any time soon.

The ECB is still on the case regarding monetary policy. Europe is healing – but slowly.

Rest of the World
Japan lost its Treasurer in a scandal but that hasn’t stopped the policy machine from seeking new ways of supporting the economy.

New Zealand kept its rate on hold but it is considering further cuts.

Russia is hurting and is seemingly trying to gain support in oil prices. But, apparently, the nature of the frozen terrain in Siberia means that if they do cut back supply from there, it will be lost forever. As a result, this month’s meeting between OPEC and Russia is limited in what it might achieve – but, perhaps, talking is a useful start.

Nigeria has just sought a $US3.5bn international loan to support its budget while oil prices for its major export are depressed.

Article by Ron Bewley brought to you by Infocus