13 September 2019
The Australian and US markets have been relatively volatile over the past three months after a very strong start to the year.
On the 30th July the ASX 200 briefly surpassed the all time high of 6,851, which was set on 1st November 2007. There is of course more to the story than price, as these stocks have been paying consistent dividends over the period. The chart below shows the ASX 200 over the last 12 months, and you can clearly see the strong gains between January and August this year.
Interest rates have dropped again since our last newsletter and the official interest rate now stands at 1.0%. It is quite unusual to see interest rates being dropped while the share market is hitting all time highs, usually interest rates are lifted to slow down a strong market. This is happening because despite the sharemarket doing well the government is concerned other parts of the economy are struggling and bordering on recession. This includes the retail sector and of course the devastating impact of the ongoing NSW/Qld drought.
Overall the Australian economy is growing slowly, with real economic growth only 1.4% for the year to June 2019. This is also being seen in global economies that are feeling the effects of the escalating US-China trade war and European political risks with Brexit. The Reserve Bank is however optimistic as the full effects of the interest rate and tax cuts are yet to flow through the economy.
While this latest growth figure is low it allows Australia to maintain its record of over 27 years of economic growth, with the last recession being in the early 1990s. Borrowing is also very cheap and we are seeing owner occupied home loans at just over 3%. As I’m often told by the farmers I meet with this is far cry from the nearly 20% seen in the early 80s.
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