Signs of confidence but low growth remains | Mercer

Signs of confidence but low growth remains

Despite many markets finishing relatively flat for September, there was still plenty for investors to contend with during the month. The Bank of Japan unveiled possibly the biggest news to the market in September, releasing its plan to target 0% for the 10yr Japanese Government Bond yield and an intention to overshoot its 2% inflation target. The aim is to minimise flattening of the JGB yield curve. The US Federal Reserve was less active in September, keeping interest rates at 0.25-0.50%; however Yellen didn’t rule out the case for a further 2016 rate hike. Many eyes were poised throughout the month on the US presidential debates. Most polls still reveal Clinton leading, however, markets will continue to watch closely leading up to the November election.

Elsewhere, Eurozone inflation rose to 0.4% in September, ahead of expectations for 0.2%. The ECB would be pleased with this result following a period of heavily-criticised expansionary monetary policy accompanied by nominal signs of impact.

A major development for growth markets during the month was the unexpected deal reached at the OPEC meeting in Algeria. Major oil producers reached a provisional deal to reduce output to a target of 32.5-33.0 million barrels per day. While the deal itself isn’t final, September saw a modest 4.5% rise in the price of oil to finish the month at $48.97 per barrel.

During September, the IMF also released projections that global growth is expected to slow to 3.1% for 2016 before recovering to 3.4% for 2017, revised down 0.1% from the April forecasts. The revision reflects a more subdued outlook for advanced economies.

Australian shares felt the flow-on from global developments before finishing the month marginally ahead. The S&P/ASX 300 rose 0.5% for the month. Philip Lowe didn’t surprise markets in his first meeting as Reserve Bank of Australia (RBA) Governor, the board decided to leave the cash rate unchanged at 1.50%. Despite historically low levels of cash rates, Australia’s terms of trade inflated 1.1% over the month to finish 6.7% higher than its September 2015 low, supported in particular by increases in commodity prices.

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