Investors were disappointed after the Bank of Japan’s latest efforts to stimulate the economy failed to excite market participants; the US reported weak second-quarter GDP data; and oil prices took a fresh slide recently says George Lucas, managing director Instreet Investment.

“However there are still some reasons to remain optimistic as we analyse these developments”, he added.

“Starting with Japan, where the Bank of Japan (BoJ) decided last week not to cut the interest rate it pays on excess reserves or to target a more rapid increase in Japan’s monetary base. In response, the Japanese Yen climbed to its highest level against the US Dollar in three weeks and Japanese government bond prices sank.

“The BoJ did decide to increase purchases of equity-linked exchange-traded funds (ETF), however investors had expected the BoJ to do significantly more in order to try to raise inflation towards its target of 2%. The ETF purchase announcement did at least help the equity market to rebound even though the Yen strengthened.

In the US, GDP grew by a disappointing 1.2% annualised in quarter two.

“The only good news was that consumption increased significantly and net exports boosted growth. Contractions were reported in business and residential investment, government expenditure and inventories.

Looking ahead to the second half of the year, there are still some reasons to remain optimistic. For example, the drag from mining-related investment will fade, residential investment should recover and net exports ought to benefit from the stabilisation of the US Dollar.

Non-farm payrolls for July are also due out on Friday and we are expecting a gain of 190,000, which should be enough to bring the unemployment rate back down to 4.8%. Average hourly earnings will also be keenly watched.

Concerns about the ongoing oil glut continue to hammer prices, with Brent Crude heading towards $42 a barrel for the first time since April.

“The latest slide comes as energy traders are storing more crude off the UK coast, with some parking as much as two weeks’ worth of UK production on supertankers. They are struggling to find buyers as demand from refiners has slipped after they produced too much gasoline in the first half of the year.

There are signs, however, that the oil market has made progress since prices slipped to a 13-year low of less than $30 a barrel at the start of this year. Global crude oil inventories have started to draw and forecasts remain for the market to come closer to balance by the end of this year.

The stronger US dollar has also helped cause some of the weakness in dollar-priced commodities like crude.

Global PMIs

The latest Global PMI data is on its way. Here’s our round up of the different markets:

  • US – We expect a rebound in both the ISM manufacturing and non-manufacturing indices.
  • China – Both the Caixin/Markit manufacturing PMI and the “official” index fell in June, but we expect them to rebound slightly in July.
  • Japan – Activity data released last week suggests Japan’s economy continued to recover last quarter. The labour market continues to tighten further with the unemployment rate falling to 3.1%.
  • Euro-zone – The preliminary flash GDP estimate shows that growth slowed in the euro-zone in Q2. The 0.3% quarterly gain came as something of a relief after a very sharp slowdown in France. Euro-zone inflation rose from +0.1% to +0.2% in July as a result of higher food inflation. Core inflation remained subdued, and the unemployment rate remained at 10.1% in June.

Finally, a word on Australia where the market expects the Reserve Bank of Australia (RBA) to cut its policy rate from 1.75% to 1.50% on Tuesday.

Retail sales for Australia are also due out this week and we are expecting a rise of 0.4% m/m in June.

About Instreet

Instreet is an independent investment house that works closely with the financial adviser community to conceive and distribute retail investment products. After identifying adviser needs and market trends, Instreet builds customised investments sourcing quality wholesale providers. By doing so, Instreet makes institutional assets available to individual investors. The end result is a range of investment solutions designed to better achieve the goals of clients and advisers.

For more information: www.instreet.com.au

Contact Details

George Lucas at Instreet
M: 0418 202 228
E: glucas@instreet.com.au

Simrita Virk at Shed Media
M: 043 4531 172
E: svirk@shedmedia.com.au

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