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Isaac Robinson

September 2023 Economic and Share Market Update

Written by Isaac Robinson

Share Market Update

Despite strong performance over the past year, the SP500 fell for the second month in a row. The 2.2% decline was mainly driven by investor concerns over increases bond yields and decreased earnings estimates for 2023 and 2024. Investors are also concerned about the ongoing United Auto Workers strike that began earlier this month. In addition, the Federal Reserve indicated that one more rate hike was likely for 2023 and that rates were likely remain higher for longer. Due to the importance of the US on the global stage, these events also weighed on the ASX200, which fell by 1.8% over the past month.

European markets also fell for the 2nd consecutive month. Similar to the US, Eurozone government bond yields increased after European Central Bank officials stated that another interest rate hike could not be ruled out. Investors are also concerned about weak business activity, as data showed the combined activity in the manufacturing and services sectors is contracting. As a result, the STOXX 600 Europe fell 1.1%.

In China, despite very poor performance in August, the SSE Composite index is slightly up over the past month, rising 0.3%. Senior officials acknowledged that China is facing economic challenges and issued a number of pro-growth measures aimed at stimulating consumption and reviving the property market. Also, the official data release for August showed that the economy may be beginning to stabilise, with industrial production, retail sales, and lending activity rising more than forecasted.

Economic Update

Australian Economic Overview

In Australia, Gross Domestic Product (GDP) rose 0.4% in the June quarter, marking 7 consecutive quarters of GDP growth. Exports and investment were the primary contributors to this quarter’s growth. The Australian economy grew by 3.4% in 2022-23, above the 10-year pre-pandemic average of 2.6%, reflecting a strong recovery in demand following the COVID-19 lockdowns in September quarter of the previous financial year. Despite the big 4 banks forecasting last quarter that there would likely be further rate hikes, the RBA cash rate target has not moved since the rate hike in June, remaining at 4.10%. However, the RBA stated that some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame. In the June Quarter, annual CPI inflation was 6%, down from 7% in the March quarter. The areas the experienced the highest inflation were insurance and financial services (8.5%) and housing (8.1%). Inflation continues to outpace wage growth, which grew 3.6% in the June quarter, down from 3.7% in the previous quarter. Unemployment has remained stable from July to August at 3.7%. The Australian dollar weakened against the US dollar (0.67 to 0.64) and the Yuan (4.83 to 4.69).

World Economic Overview

The United States is responsible for approximately 25% of global GDP. Due to the size of their economy, the economic health of the US has a global impact. GDP grew at an annualised rate of 2.1% in the June quarter, compared to 2.0% in the March quarter. Despite the 10 month streak of rate hikes being broken in June, the Federal Reserve resumed the rate hikes, increasing the Federal funds rate in July to 5.25 – 5.50%, where it has remained for the rest of the quarter. In a recent speech, the Governor of the Fed stated that inflation is still too high, and they may be required to raise rates further and hold them at restrictive levels for some time. This speech came after data revealed inflation had slightly increased, from 3% in June to 3.2% in July, to 3.7% in August, ending the 12 month trend of declining inflation.

China is responsible for approximately 19% of global GDP, and is also very important on the global stage, especially to us here in Australia. According to the National Bureau of Statistics of China, annualised GDP growth was 6.3% over the July quarter, up from 4.5%. However, sentiment on China’s economy has continued to become increasingly negative. Over 20% of 16 to 24 year olds are unemployed, industrial output, retail sales, and fixed asset investment all grew at slower than expected pace in July, and the property sector continues to struggle. In an attempt to spur their economy, the People’s Bank of China is allowing commercial banks to hold less money in reserves, allowing them to lend more. They also decided to cut rates from 3.55% to 3.45%.

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