Summary

In Australia, the RBA left the official cash rate on hold in September and again in early October at 2%. The US Federal Open Market Committee met in September and held the Fed Fund’s target rate at 0%-0.25%. The European Central Bank also met in September however no policy changes were announced. The Bank of England left policy unchanged at its meeting on 10 September with the Bank Rate staying at 0.5%. The Bank of Japan’s policy board also convened in September and left its qualitative and quantitative easing program at an annual increase of ¥80trillion to its monetary base.

Australia

• The RBA left the official cash rate on hold at 2% at its meeting on 1 September 2015 and again on 6 October 2015 where it has remained since May this year.
• The RBA acknowledged in October “monetary policy needs to be accommodative” and “further information on economic and financial conditions to be received over the period ahead will inform the Board’s ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”
• Governor Stevens testified at the House of Representatives Standing Committee on Economics on 18 September noting that the “Australian economy continues to progress through a major adjustment, in the midst of testing international circumstances.”
• The Governor noted there were some positive aspects to note on the Australian economy; “outside the mining sector and parts of the economy most directly exposed to it, there are signs that conditions have been very gradually improving.” This could also be seen in job vacancies and “the rate of unemployment, though variable from month to month, seems to have stopped rising, and it is at a level a bit lower than we had thought, six months ago, it might reach.”
• Building approval numbers continue to be a volatile monthly series, falling 6.9% per month and rising 5.1%per year for August. House approvals rose 4.4% while apartment approvals fell 16.9% in the month. Over the past 12 months a record 225,406 new homes were approved.
• Credit growth numbers are showing some signs that regulatory initiatives are having an impact on investor lending. Overall private sector credit growth rose 0.6% per year and 6.3% per year. Investor housing lending growth slowed to 10.7% per year, down from the peak of 11.1% per year in June 2015. Owner-occupier lending rose to 5.6% per year from 5.3% per year in July. Business credit growth also improved, up 5.3% per year from 4.8% per year.
• Employment figures continued to surprise on the upside with 17,400 jobs added in August. The unemployment rate fell to 6.2% from 6.3%. Over the past 12 months 214,000 jobs have been added, the strongest in four years.
• Australian house prices rose 0.9% in September, following a 0.3% rise in August. This took annual house price growth to 11.0% per year, up from 10.3% per year in August. On a capital city basis Melbourne rose strongly, up 2.4% per month to be up 14.2% per year. Sydney (+0.1% per month), Brisbane (+0.8% per month) and Perth (+0.5% per month) all rose while Adelaide (-1.2%) fell.

 Australian dollar

• The Australian dollar finished down 1.4% against the USD in September to $US0.7017. The Australian dollar traded as low as $US0.6911 and as high as $US0.7219 during the month, largely reflective of changes in views of the first rate hike for the US Federal Reserve.
• The Australian dollar also moved lower against both the euro (-1.0%), the New Zealand dollar (-2.3%) and the Japanese yen (-2.5%). In contrast the Australian dollar rose 0.1% against the sterling.

 Commodities

• Commodity prices traded with volatility again in September, weighed down by the US dollar and growth concerns in China. Overall commodity prices were weaker but this hides significant divergence of price performance between various commodities.
• The oil price traded in a wide range, with the price of West Texas Intermediate Crude finishing the month down 8.4% after rising sharply in late August. The iron ore price, as measured by the benchmark price of iron ore delivered to Qingdao China – 62% Ferrous Content rose 0.2% to $US56.32 a metric tonne and was largely stable over the month.
• Metal prices were mixed with zinc (-6.7%) and lead (-3.5%) falling while tin (+9.3%) and nickel (+3.4%) rose.

Australian equities

• Weakness in the Australian equity market persisted in September, with the S&P/ASX 200 Accumulation Index declining by a further 3.0%. The market remained volatile throughout the month, with regular and significant swings in investor sentiment.
• Energy and Materials stocks remained under pressure, reflecting ongoing weakness in commodity prices.
• There were some notable company events in these sectors too. Woodside Petroleum launched an all-stock, $11.6 billion takeover approach for Oil Search. This bid was rejected by the Oil Search Board, which suggested it undervalued the company. Later in the month, Origin Energy announced a $2.5 billion equity raising. The low oil price has put pressure on the company’s financial position and may have jeopardised its credit rating.
• The next significant period of earnings announcements in Australia is in late October / early November, when three of the four major banks will announce their results for the period ending 30 September 2015.

 Listed property

• ASX-listed property stocks outperformed the broader share market, with the S&P/ASX 200 Property Accumulation Index declining in value by just 0.3%.
• Stocks exposed to discretionary consumer expenditure continued to perform relatively well. Scentre Group (+2.4%) and Westfield Corporation (+2.3%) were among the best performing stocks in the index, for example. Official data has confirmed that retail sales growth in Australia remains reasonably robust, likely supported by ongoing low borrowing costs.
• In other news, Australian Industrial REIT attracted competing takeover approaches from 360 Capital Investment Management and a consortium of offshore listed investors. Both offers remained live at month end.
• Despite broader weakness in global equity markets, offshore property stocks managed a small gain. The FTSE EPRA/NAREIT Global Developed Index added 1.2% in USD terms. The Index was supported by favourable performance among US REITs (+3.0%), which offset weakness in Asian markets including Hong Kong (-1.5%) and Singapore (-3.8%).

 Global emerging markets

• September was another challenging month for emerging market equities with ongoing concern over the pace of economic growth and how these economies will deal with an eventual rate rise by the US Federal Reserve and further US dollar appreciation.
• The Reserve Bank of India surprised the market and cut its repurchase rate by 50 basis points to 6.75%. Its last interest rate cut was in April and with central bank citing stronger global headwinds, lower 2016 inflation expectations and a weak monetary policy transmission mechanism. Emerging market (EM) equities fell 3.3% (MSCI Emerging Market Index), taking year to date losses to 15.3%. Latin America was again the weakest performer with Argentinean BURCAP Index falling 11.5% in the month.

© Colonial First State Investments Limited ABN 98 002 348 352 AFS Licence 232468.  This document has been prepared by Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) based on its understanding of current regulatory requirements and laws as at 7 September 2015. This document is not advice and provides information only. It does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement available from the product issuer carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision.