- Recent economic data continues to show that the major economies are all growing and that global growth is accelerating
- In Japan, the recent elections returned Prime Minister Shizo Abe’s Liberal Democratic Party with a larger majority allowing a continuation of Abenomics
- In the US, markets reacted favourably to the details of the Republican tax reforms and news that Jerome Powell will be nominated as the next Federal Reserve Chairman
- In China the 19th Communist Party Congress elected Xi Jinping for another five years as President and General Secretary paving the way for further reform of the Chinese economy
- Australian employment continues to grow strongly helped by strong business conditions.
Despite another busy month in both a political and non-political sense, there was little out there to rattle equity markets during October. While the turmoil in Spain regarding the independence of Catalonia, and the announcement of charges being filed against three former Trump campaign personnel, caused market jitters, the broad theme of synchronised global economic growth and strong corporate earnings has continued.
In Australia, October saw another strong employment report with unemployment falling from 5.6% to 5.5% and business conditions remaining at strong levels. However, September quarter inflation was lower than expected falling from 1.9% to 1.8% year-on-year. Retail sales have also been subdued with sales flat in September after falling in both July and August as consumers battle with low wages growth and higher utility bills.
In Japan, Shinzo Abe’s gamble to hold an early election last month paid off and the ruling Liberal Democrat Party retained its two-thirds majority of the lower house, effectively locking them in power until 2021. For investors, the win secures the future of Abenomics, and in particular the aggressive easing of monetary policy.
In China, the official PMIs for October suggest that the economy has slowed a little in recent months. In the detail, PMIs for medium and small sized manufacturing firms are now both in contraction territory. The 19th Communist Party Congress went smoothly for President Xi cementing his power for the next five years and providing a mandate to more aggressively pursue economic reform.
In the Eurozone, the initial estimate of annual GDP growth in the September quarter was better than expected, rising to 2.5% (from 2.3% in the June quarter) which is now the best growth rate since 2011. At its October meeting, the European Central Bank announced that it would halve the size of its bond buying program to €30 billion per month from January 2018.
In the United States, unemployment and underemployment have both fallen to new cyclical lows of 4.1% and 7.9% respectively, however, wages growth and inflation are still both subdued. October’s ISM non-manufacturing index rose to its highest since the index began in 2005 and the ISM manufacturing survey also remains at healthy levels with both indices suggesting that fourth quarter growth could be relatively solid.