Market Watch

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

The broad-based pick-up in the global economy is continuing. Labour markets have tightened further in many countries and forecasts for global growth have been revised up since last year. Above-trend growth is expected in a number of advanced economies, although uncertainties remain. In China, growth is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk. The rise in commodity prices over the past year has boosted Australia’s national income.

Headline inflation rates, having moved higher over the past year, have declined recently in response to lower oil prices. Wage growth remains subdued in most countries, as does core inflation. Further increases in US interest rates are expected and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively and volatility has been low.

As expected, GDP growth slowed in the March quarter, partly reflecting temporary factors. The Australian economy is expected to strengthen gradually, with the transition to lower levels of mining investment following the mining investment boom almost complete. Business conditions have improved and capacity utilisation has increased. Business investment has picked up in those parts of the country not directly affected by the decline in mining investment. At the same time, consumption growth remains subdued, reflecting slow growth in real wages and high levels of household debt.

Indicators of the labour market remain mixed. Employment growth has been stronger over recent months. The various forward-looking indicators point to continued growth in employment over the period ahead. Wage growth remains low, however, and this is likely to continue for a while yet. Inflation is expected to increase gradually as the economy strengthens.

The outlook continues to be supported by the low level of interest rates. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.

Conditions in the housing market vary considerably around the country. Housing prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease. In some other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases are the slowest for two decades. Growth in housing debt has outpaced the slow growth in household incomes. The recent supervisory measures should help address the risks associated with high and rising levels of household indebtedness. Lenders have also announced increases in mortgage rates for investor and interest-only loans.

Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

Source: Reserve Bank of Australia July 4th, 2017

Enquiries

Media and Communications
Secretary’s Department
Reserve Bank of Australia
SYDNEY

Phone: +61 2 9551 9720
Fax: +61 2 9551 8033
Email: rbainfo@rba.gov.au

The end of financial year is with us, and if we take a look at how some of the major asset classes have performed, it turns out the last 12 months have been pretty good for investors.

Disruption was one of the buzz words in 2016 but the discussion largely focused on the potential of technology to disrupt established business models. In 2017, we expect technologies to deliver the first waves of impact. A few industries in particular will see technology change the way they do business, namely manufacturing, finance and retail.

Automated vehicles

Driverless cars have the potential to impact a number of industries in profound ways, all of which AMP Capital considers in detail in our long-term ESG research¹. The technology is gathering pace. Some observers are now forecasting that a level four automated car (one level beneath full automation) capable of mass production will be tested in 2017. 

Entrepreneur Elon Musk has promised to have a Tesla drive itself from Los Angeles to New York City with no human input this year and it is possible that Waymo (formerly Google’s autonomous driving subsidiary) will launch a commercial level four service in some locations this year.

Waymo has also recently announced that it has developed technology that operates in rain, fog and snow while BMW said in January 2017 that it will test 40 self-driving cars in suburban environments in the second half of this year. These were previously considered to be key barriers to the technology. Volvo is lending 100 of its level four automated SUVs to Swedish customers to test it on commuter routes at average speeds of 70 kilometres per hour. 

Some governments are proactively courting driverless car technologies by offering areas as test sites and passing regulatory guidelines for the operation of driverless cars on public roads². Real estate, retail, infrastructure and insurance are the four industries that are shaping up to be the most profoundly affected by these vehicles in the medium term.

Blockchain 

Blockchain has the potential to be one of the most transformative technologies for large businesses in decades. Blockchain is basically a shared distributed ledger, or a database of real-time transactions, that can be accessed by any node in the network at any time.

Blockchain allows for the exchange of data in real time for very little cost and is relatively safe and secure because the system operates across a network of computers. It is a peer-to-peer system so is considered safer and more transparent than its traditional brethren, which was managed by one central authority on the one internal platform. It is possible that 2017 will be the year that one of the large financial services organisations globally will announce that it is switching a significant IT platform to blockchain. 

The Australian Securities Exchange (ASX) has been the global leader to date in developing applications for its exchange; more specifically, its cash equities clearing and settlement operation. It ultimately hopes blockchain will replace CHESS, its system for recording shareholdings and managing the settlement of share transactions.

In January 2017, the largest settlements and clearing business in the US, the Depository Trust and Clearing Corp, announced that it will be switching one of its major data warehouses to blockchain technology from early 2018. Most of the focus has been on financial services to date but, just like driverless cars, it has been on potential rather than implementation.

Online retailing moving offline

At the end of 2016, Amazon announced that it is testing bricks and-mortar grocery stores in the US and that these stores will not have check outs. A mobile phone app keeps a record of the goods consumers pick up from the shelves, and then charges consumers through the app as they leave the store.

Amazon’s announcement was further evidence of the trend we are seeing in global listed real estate and retail: online is moving offline. The last few years have proved that online is not destroying bricks-and-mortar real estate. Rather, the two will co-exist and need each other to survive. 

Consumers expect to be able to choose whether to shop online or on foot, and bricks-and-mortar stores will morph into real-life embodiments of the brand to provide experiences that cannot be replicated online. This trend has far-reaching implications for investments in global listed real estate, with changes to supply and demand dynamics likely to impact property valuations.

For more information on ESG issues, please see our latest corporate governance report. 

If you would like to discuss anything in this article, please call us on |PHONE|.

Source: AMP Capital 16 June 2017

Author:  Kristen Le Mesurier, Senior ESG Analyst, Investment Research AMP Capital

¹ The legal, regulatory and consumer barriers to driverless cars were covered in AMP Capital’s Corporate Governance Report in September 2016.
² For example, the United States Department of Transportation released its Federal Automated Vehicles Policy in September 2016 titled Accelerating the Next Revolution in Roadway Safety.

While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

The broad-based pick-up in the global economy is continuing. Labour markets have tightened further in many countries and forecasts for global growth have been revised up since last year. Above-trend growth is expected in a number of advanced economies, although uncertainties remain. In China, growth is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk. Commodity prices are generally higher than they were a year ago, providing a boost to Australia’s national income. The prices of iron ore and coal, however, have declined over recent months as expected, unwinding some of the earlier increases.

Headline inflation rates in most countries have moved higher over the past year, partly reflecting the higher commodity prices. Core inflation remains low, as do long-term bond yields. Further increases in US interest rates are expected over the year ahead and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively.

Domestically, the transition to lower levels of mining investment following the mining investment boom is almost complete. Business conditions have improved and capacity utilisation has increased. Business investment has picked up in those parts of the country not directly affected by the decline in mining investment. Year-ended GDP growth is expected to have slowed in the March quarter, reflecting the quarter-to-quarter variation in the growth figures. Looking forward, economic growth is still expected to increase gradually over the next couple of years to a little above 3 per cent.

Indicators of the labour market remain mixed. Employment growth has been stronger over recent months, although growth in total hours worked remains weak. The various forward-looking indicators point to continued growth in employment over the period ahead. Wage growth remains low and this is likely to continue for a while yet. Inflation is expected to increase gradually as the economy strengthens. Slow growth in real wages is restraining growth in household consumption.

The outlook continues to be supported by the low level of interest rates. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.

Conditions in the housing market vary considerably around the country. Prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases are the slowest for two decades. Growth in housing debt has outpaced the slow growth in household incomes. The recent supervisory measures should help address the risks associated with high and rising levels of indebtedness. Lenders have also announced increases in mortgage rates, particularly those paid by investors and on interest-only loans.

Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

Source: Reserve Bank of Australia

Enquiries

Media and Communications
Secretary’s Department
Reserve Bank of Australia
SYDNEY

Phone: +61 2 9551 9720
Fax: +61 2 9551 8033
Email: rbainfo@rba.gov.au

We spoke to some of our investment professionals to get their views on how the Federal Budget has impacted their respective asset classes.

John Julian, Investment Director – Direct Infrastructure
Shift in approach to funding infrastructure projects

Michael Kingcott, Head of Property Investment Strategy
Tackling softness and a lack of investment

Andrew Scott, Senior Portfolio Manager – Fixed income
Is the Budget inconsequential for bonds?

Michael Price, Head of Australian Fundamental Equities
Budget may put downward pressure on the Australian dollar

Read full article >>

If you would like to discuss anything in this article, please call us on |PHONE|.

Sugar is emerging as one of the most prominent investment risks for the global food and beverage industry. Science has linked high sugar consumption to obesity and Type 2 diabetes at a time when obesity rates are rising and healthcare costs for governments are growing.

Globally, 39% of adults worldwide are overweight¹. The number of obese adults doubled between 1980 and 2014². China is expected to have the highest number of obese children in the world by 2025³. There is already three times the number of teenagers in China with diabetes than in the US⁴.

In fact, obesity alone accounts for 21% of healthcare spending⁵ in the US and in the UK, 10% of the NHS budget is spent on Type 2 diabetes⁶.

A long-term trend toward health and wellness is already limiting the growth profile of companies manufacturing and selling products with high sugar content. This would deepen materially if any of the following occurs:

• Increased public concern from medical and public health organisations about the health impact of sugar consumption and greater awareness from consumers about the sugar content of food.

• Clear numbers on the cost of delivering health services to combat obesity. This would create the political will to impose sugar taxes, nutrition labels and/or advertising restrictions in an attempt to reduce consumption.

• Scientific evidence that sugar is the cause of particular diseases that cause death, which may enable large-scale litigation.

There are early signs that the first two are occurring. The World Health Organisation halved its recommended proportion of daily calories from sugar to six teaspoons a day in 2015 and publicly called for governments to impose sugar taxes on beverages for the first time in 2016⁷.

There is evidence of increasing numbers of consumers making healthier food choices. Soft drink sales for some listed companies are flat lining or trending lower and processed food purchases per capita are down in some markets.

Some countries and states are already responding with sugar taxes. There are now soda (soft drink) taxes in Mexico, the UK, Philadelphia in the US (the first large US state to impose a tax on soda), the city of Berkeley in California, and there is a current proposal in Ireland. Thirty-three cities in the US have attempted to introduce some form of soda tax. There are restrictions around advertising to children in Mexico and France and nutrition labels that include sugar content are being imposed for the first time in the US.

In Australia, the Greens have a soda tax on its policy platform and the party has said it will introduce a private senator’s bill by the end of 2017 if the Federal Government does not move to introduce one of its own.

While the major parties in Australia do not yet have plans to introduce any form of soda tax, the public discussion generated by the possibility of a soda tax has the potential to reduce consumption given that it shines a spotlight on the issue and accelerates consumer education about the health impacts of sugar.

We believe these discussions will step up a notch during 2017.

For more information on ESG issues, please see our latest corporate governance report.

Source: AMP Capital 7 April 2017

¹ World Health Organisation Obesity and Overweight fact sheet, June 2016
² As above.
³ Planning for the worst: estimates of obesity and comorbidities in school-age children in 2025 by Lobstein & Jackson-Leach, Pediatric Obesity, September 2016
⁴ S. Yan, J. Li, S. Li, B. Zhang, S. Du, P. Gordon-Larsen, L. Adair, B. Popkin The expanding burden of cardiometabolic risk in China: the China Health and Nutrition Survey, Obesity Reviews Volume 13, Issue 9, September 2012
⁵  https://www.hsph.harvard.edu/obesity-prevention-source/obesity-consequences/economic/
⁶  https://www.gov.uk/government/news/five-million-people-at-high-risk-oftype-2-diabetes
⁷ World Health Organisation Fiscal policies for diet and the prevention of noncommunicable diseases – Technical meeting report, published October 2016

While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.