The ASX200 index rose 7.6% in a strong quarter to close at 6,195.
Australia’s economic outlook continues to improve with growth expected to continue on-trend this year. The housing market cycle has peaked with both Sydney and Melbourne prices easing and auction clearance soft through the Winter period. Business spending and planned public infrastructure projects are expected to support domestic economic growth. Job growth has moderated but continues to place downward pressure on unemployment figures with some sectors of the economy displaying skill shortages, but wage growth is still allusive. Australian households continue to remain under pressure with high debt and slow income growth constraining consumption.
- The Reserve Bank of Australia (RBA) maintained the cash rate at 1.50% p.a. for a record 22 consecutive month
- Markets are indicating this is unlikely to change before late 2019
- The housing market softened further with Sydney and Melbourne auction clearance clearing marginally higher than 50%
- One factor slowing Australian housing is lending conditions which have continued to tighten with the banks responding to warnings from the Australian Prudential Regulatory Authority (APRA). Banks are now requiring increased information regarding loan serviceability and larger deposits
- In the labour market unemployment rate continues to hold at 5.5% with potential declines offset by higher participation among working age Australians
- Wage growth remains low and stable at 2.1%
- Jobs in healthcare and education wages are growing at a higher rate
- Minimum wage is to increase 3.5% in the September quarter
- The outlook is for wages growth to accelerate with companies noting skill shortages in IT and construction roles
- The inflation rate remains at 1.9% delaying any interest rate increases. However, the RBA is expecting inflation to push above their 2% target propelled by strengthening economy and gradual growth in wages
- The Australian dollar retreated over the quarter falling 3 cents to US$0.74 helping support economic activity in Australia
- US Stock markets returned to growth this quarter with the DOW increasing 2.7% and the S&P 500 growing 5.3%
- US interest rates continue to increase, up another 0.25% this quarter to 2.0% p.a. with the market expecting another increase of 0.25% this year for a total increase of 0.75% for the year
- A trade war between the US and The Rest of the World continues to destabilise markets with multiple countries imposing tariffs in response to President Trump’s tariffs. Market commentators have highlighted a common theme among retaliatory tariffs targeting President Trumps supporter base
- The US is approaching Mid-term elections in November, a key test of the Trump Presidency
Financial Year in Review
The financial year began slowly with the ASX200 trading in a tight range until October when volatility returned to the market. However, despite market uncertainty around US trade policy, President Trump and yet another Italian scare the Australian market has had a good year with the ASX200 returning 8.3%. Although not all market sectors performed well with telecommunications -30%, Utilities -7% and Financials -4%. On the positive side were strong gains in Healthcare 34%, Energy 31% and Information Technology 25%. It was a year in which some of the markets biggest stocks failed to perform from the banks, Telstra and AGL but was more than made up for by CSL and Cochlear, a bounce in energy commodity prices assisting energy producers and Information Technology companies continuing to perform well.