- The correction in shares continued over the last week. While dovish minutes from the US Federal Reserve’s (Fed) last meeting provided mid-week support it was short lived as nervousness about growth in Europe and the broader global growth outlook, along with worries about the ending of the Fed’s third round of quantitative easing (QE3) later this month and Ebola weighed. This saw most share markets fall with US shares -3.1%, European shares -4.4%, Japanese shares -2.6% and Australian shares -2.4%. From their highs last month US shares have fallen 5%, global shares are down 6% and Australian shares are down 8%. The Australian share market has effectively led the global share markets on the way down reflecting falling iron ore prices, fears about Australian banks needing to raise more capital and the tendency for foreign investors to stay away as the Australian dollar falls. Reflecting falling global inflation expectations and safe-haven demand bond yields generally fell. The US dollar had a fall from overbought levels and this saw the Australian dollar bounce modestly. Meanwhile, commodity prices were mixed with oil prices down sharply but metal prices up slightly. World oil prices are now down 20% since the problems with the Islamic State in Iraq first hit the global headlines a few months ago.
- A downgrade to the International Monetary Fund’s (IMF) outlook for global growth is clearly weighing on sentiment. The downgrade was only modest taking its global growth forecasts down by just 0.1% to 3.3% for 2014 and down by 0.2% to 3.8% for 2015, but it nevertheless highlighted the softness in global growth momentum outside the US. However, it was hardly new news, as weakness in Europe, Japan, Brazil and Russia is well known, and is just a repeat of the pattern seen in the last few years where stronger global growth is forecast in the year ahead only to be revised down as we get closer to it. In some ways the uneven, “not too hot, not too cold” global economic expansion is not bad as it means we remain a long way from overheating, higher inflation and aggressive monetary tightening.
Please click here to read the full article: Weekly Report ~ 10 October 2014