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BT Financial Group Investment Specialist Riccardo Briganti brings you our latest market update on both local and international markets, from overseas tensions to the RBA cash rate.

As the year draws to a close, we consider recent market and economic performance in the context of the broader trends seen during the year. US and global equities have performed strongly over the course of 2017, posting positive returns in each quarter. This occurred despite a number of setbacks that had the potential to derail the positive momentum, including increased tensions with North Korea, delays in the implementation of Trump’s policy agenda and US natural disasters. The US S&P500 looks likely to post a return greater than 15% for 2017 with a solid 3%-plus return for the final quarter of the year. Valuations continue to be the major concern, but this has been offset by increased confidence in the economic outlook.

Emerging markets have been a strong beneficiary of the improved global economic outlook and were furthered boosted by the positive response to the 19th National Congress of the Communist Party of China, which took place in October. Held every five years, the National Congress was closely watched for clues to any change in the Government’s priorities or possible shifts in power within the Communist Party. Most believe Xi Jinping has been able to cement his position as General Secretary for the next five years and probably beyond. As a result, the main thrust of Chinese policy is expected to be largely unchanged. In particular, there has been a renewed emphasis on the anticorruption drive and the Belt and Road initiative which will see an expansion of Chinese infrastructure projects across Asia, Europe and Africa.

European economic data has maintained recent strength but as is often the case European politics has intervened to once again increase concerns about the stability of the European Union. French, Dutch and German elections during the year proved to be less problematic than initially expected. However, the Basque separatist movement in Spain was a reminder of the difficulty of
holding the European Union together.

In Australia, the equities market rebounded strongly in October following five months of lacklustre returns driven in part by concerns following the Commonwealth Budget and uninspiring economic data. The rebound was partly due to an improvement in economic data with June quarter GDP surprising on the upside and the composition of employment growth changing for the positive. Whereas previously, parttime workers dominated improvements in employment, more recent data showed full time workers increasing sharply. Consumer sentiment remains subdued despite the recovery in full-time employment, most likely reflecting the fact that wages growth remains stuck at around 2%.

As a result, there is little to suggest that the positive economic developments will be sufficient to see the Reserve Bank of Australia increase official interest rates any time soon. In fact, market expectations of a rate hike have been wound back to the point that few expect higher interest rates until the middle of 2018.