July Market Update Overview
- After strong rises in equity prices off the lows in February, developed market equities were weaker in June, following the decision by voters in the UK to elect to leave the European Union (“Brexit”).
- Gold prices rose 9% in June and crude oil prices were a little lower during the month.
- China economic data showed further softness in the manufacturing side of the economy, but other areas such as the housing and services industries were stronger in June.
- US economic data was fairly good, apart from the non-farm payrolls figures, which were the weakest since 2011.
- Economic data in Europe was fairly good – particularly in the UK, Germany and France. Eurozone inflation continues to tick up and unemployment is gradually heading lower.
- Australia’s economy is in reasonably good shape with consumers and businesses finding conditions reasonably good. Property prices have been rising strongly, helped by the RBA’s rate cut in May.
It was a difficult month for equities with an initial sell off in June, after the release of weak jobs growth figures in the United States, and another decline later in the month following the UK’s surprise decision to vote to leave the European Union.
The initial reading of the May non-farm payrolls report was very disappointing with just 38,000 jobs created, well down on the 200,000 monthly average over the past few years.
The European economy continues to perform reasonably well. Core inflation continued to edge up, from 0.8% year-on-year in May, to 0.9% in June, and the unemployment rate fell from 10.2% in May to 10.1% in June.
The economy is performing in line with expectations. Manufacturing surveys showed flat to slightly weaker activity levels in June but the index of activity was stronger at non-manufacturing and services firms in June, when compared with May.
In Japan, the data has been mixed. Industrial production was weaker in May, by around 2.3%, but housing starts rose 9.8% year-on-year.
Employment growth has held up reasonably well and the unemployment rate remained steady at 5.7% in May. Other economic indicators such as the NAB business conditions index have also been reasonably strong compared with long term average levels. And house price growth has accelerated in recent months.