Global markets saw a volatile week as equities attempted to recover from the plunge following the Chinese Yuan drop in response to the tariffs imposed by the US. The S&P 500 index gave back early week losses as investors shifted their focus to global growth as central banks move to ease monetary policy. The US-China trade war saw a sell-off in UK and Australian equities. AUD slid to a ten-year low amidst trade issues and greater than expected rate cuts in New Zealand, India and Thailand.
The annual Diggers and Dealers mining conference in Kalgoorlie (Australia’s gold capital in Western Australia) received an extra boost this year. The Australian dollar gold price breached A$2100/oz (a record high) during the conference and hopes are high that this is only the beginning as even the US$ gold price is breaking out on the upside. Geopolitical uncertainty, made worse by ongoing US-China trade fears, has shepherded investors into gold and the US dollar (global reserve currency) as a safe haven. Usually, a break-out in the gold price is a flashing warning sign for upcoming inflation however this time it is maybe different as the world is fighting deflation.
On some more positive news, CBA has said in its profit announcement that it is seeing an improvement in the housing market including improved clearance rates, stabilisation of prices in Sydney and Melbourne, and slightly higher housing credit growth; and there is a pipeline of stimulus including tax cuts and infrastructure spending which has not yet flowed through. It is also pleasing to see in CBA’s result that 90-day home loan arrears improved by 2bps over the year.
The latest economic news out of Germany is showing the negative impact of the trade war and the slowing global economy. Output shrank by 0.1% in the second quarter compared with the previous three months. The contractions are a consequence of a drop in industrial production and construction that amounted to 0.6% of gross domestic product. Pressure is mounting on Europe’s biggest economy to start doing more on the fiscal spending side and Angela Merkel will have to continue to battle the trade war with Donald Trump who clearly is very unhappy with Germany’s position as one of the major export economies in the world. Meanwhile, the bond market in Europe continues to slide into the negative territory with the German 10-year Bund showing minus 0.65%