The Pulse
- Markets in May were heavily influenced by political developments in the major economies
- European equities returned 2.6% in May helped by Emmanuel Macron’s convincing win in the French Presidential election
- In the middle of the month equities were sold off on revelations that Donald Trump may have pressured former head of the FBI, James Comey, to drop investigations into Russian interference in the US election
- Chinese activity indicators were softer last month but still remain at relatively high levels
- Australian economic data showed that the economy barely grew in the March quarter due to weather related factors which impacted on net exports
Australia
In Australia, GDP growth for the March quarter was relatively soft with the economy growing only 0.3% over the quarter or 1.7% over the past year, which is the slowest annual growth rate since the financial crisis in 2009. While part of the softness was weather related, household consumption growth remains subdued. Slow rates of wages growth are constraining spending with the impact being mostly felt in the retail sector as households are forced to spend more on essential services such as education, healthcare and utilities.
Global economies
Economic data has continued to be somewhat mixed in May with further falls in the unemployment rate in the US and Europe offset by softer inflation readings. Markets were also influenced by political developments in the United States and Europe.
US
In the US, some of the momentum in economic growth appears to have softened. Non-farm payrolls growth has slowed over the past few months despite the unemployment rate falling to the lowest levels since 2001. Measures of inflation and wages growth, which had been trending higher, have also fallen back over the past few months leading investors to question whether the recent softness is transitory or part of a longer-term trend.
Europe
In the Eurozone, survey based measures of activity have continued to remain at strong levels, however, core inflation fell from 1.2% in April to 0.9% in May which gives further weight to European Central Bank President Mario Draghi’s recent suggestion that tapering of bond purchases and interest rate hikes may be further away than investors have been expecting.
China
China’s activity indicators were disappointing last month with slower growth in retail sales, industrial production and fixed asset investment. There is also some evidence that the strong credit fueled growth in new home prices has begun to slow as the government moves to reign in property speculation.
Asia Region
In Japan, GDP growth in the March quarter was revised down from an annualised rate of 2.2% to 1.0%, largely due to lower corporate inventories, although private consumption and housing investment figures were also adjusted a little lower. Despite the downgrade to growth estimates, the Japanese economy has had five quarters of continuous economic growth which is the longest period of economic expansion in more than a decade.