Update on shares, property prices and the inflation scare.
In the US, the focus will likely remain on the politics around increasing the debt ceiling and President Biden’s spending plan. On the data front, September jobs data (Friday) will be a key input into when the Fed starts tapering in November – market expectations are for a 500,000 gain in payrolls after August’s slower than expected rise and unemployment is likely to fall further to 5.1%. Meanwhile, the ISM services conditions index (Tuesday) is expected to fall back slightly but to a still-strong level of around 60.
In New Zealand, it’s likely the RBNZ will follow through with its hawkish bias to raise interest rates on Wednesday after having delayed hiking last month due to the lockdown.
Outlook for investment markets
Shares remain vulnerable to short-term volatility with possible triggers being coronavirus, global supply constraints and the inflation scare, less dovish central banks, likely US tax hikes and the debt ceiling standoff and the slowing Chinese economy. But looking through the short-term noise, the combination of improving global growth and earnings, vaccines ultimately allowing a more sustained reopening and still-low interest rates augur well for shares over the next 12 months.
Expect the rising trend in bond yields to continue as it becomes clear the global recovery is continuing resulting in capital losses and poor returns from bonds over the next 12 months.
Unlisted commercial property may still see some weakness in retail and office returns but industrial is likely to be strong. Unlisted infrastructure is expected to see solid returns.
Australian home prices look likely to rise by about 21% this year before slowing to about 7% next year, being boosted by ultra-low mortgage rates, economic recovery and FOMO, but expect a progressive slowing in the pace of gains as poor affordability impacts, government home buyer incentives are cut back, listing return to more normal levels, fixed mortgage rates rise, macro prudential tightening kicks in and immigration remains down relative to normal.
Cash and bank deposits are likely to provide poor returns, given the ultra-low cash rate of 0.1%. The setback from coronavirus lockdowns could push the first rate hike back into 2024.
Although the $A could pull back further in response to the latest threats to global and Australian growth and falling iron ore prices, a rising trend is likely over the next 12 months helped by strong commodity prices and a cyclical decline in the US dollar, probably taking the $AUD up to about $US0.80.
Eurozone shares fell -0.4% on Friday, but the US S&P 500 rose 1.1% helped along by optimism around growth and a new Merck coronavirus treatment drug. Reflecting the positive US lead ASX 200 futures rose 52 points, or 0.7%, pointing to a solid start to trade for the Australian share market on Monday.
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