AMP Capital’s Shane Oliver has provided his take on these issues over recent weeks:

23 July 2019

  • Where the US economy goes is critical to the outlook for shares, including for the Australian share market.
  • While the yield curve is flashing warning signs and issues around trade and Iran could cause short-term volatility, the excesses that normally precede US recessions – a spending boom, surging private debt and/or rising inflation/tight monetary policy – are absent.
  • This along with the combination of easing monetary conditions globally, is likely to see growth continue suggesting that US – and hence global and Australian – shares are likely to be higher in 6-12 months’ time.

1 August 2019

  • The US Federal Reserve has cut the Fed Funds rate by 0.25% citing uncertainties around the outlook for growth and inflation. The key uncertainties relate to trade and weaker global growth along with ongoing low inflation.
  • We expect another one or two 0.25% cuts with the next in September but with US recession unlikely this rate cutting cycle is likely to be limited. Fed and global monetary easing generally should help boost global growth into next year.
  • Beyond potential short-term volatility, falling US rates are positive for shares on a 6 to 12 month view.
  • The main risks are the threats posed by US trade wars and tensions with Iran.
  • The RBA was already on track to cut rates to 0.5% in our view and the Fed’s move does nothing to change that.

7 August 2019

  • The trade war between the US and China is escalating, posing a rising threat to global growth.
  • Although we remain of the view that a deal will be reached, the risk has increased.
  • Share markets may need to fall further in the short term to remind both sides of the need for a deal and get them talking again.
  • However, we regard the fall in share markets as another correction rather than the start of a major bear market.