Market Mood Swings

Market Mood Swings

6 month All Ordinaries price chart (red) with 30 day moving average (green). Click on image to enlarge.
 

Hello and welcome to our first economic update. In this series we’ll be looking at the latest movements in the major economic indicators. We’ll also be trying to figure out what this means for asset markets and the Western Australian and national economies. As always, there’s been plenty going on, so let’s jump straight in.

Due to seasonality issues with September’s labour force statistics, we need to treat employment data with some caution. We can say that on a national level, the latest month’s increase of 0.1% in the seasonally adjusted unemployment rate to 6.1% is in line with the trend of the last 12 months of gradually increasing unemployment. The apparent increase of 21,600 full-time jobs in September was swallowed up by a fall in part-time unemployment of 51,300.

WA’s unemployment rate remains lower than the national rate, despite rising 0.2% to an even 5%. The State’s employment growth of 1.9% of the last 2 years has been unable to keep pace with its population growth of 3.3% across the same period, and so it appears that the (some would say unsustainable) days of unemployment below 4% are well in the past.

The last 12 months of CPI growth remain within the RBA’s band of comfort at 2.3%, with the main inflationary drivers being the bare essential of life: food, housing, alcohol and tobacco. Growth in Perth’s CPI sits above the national figure at 2.6%, tied equal 2nd with Brisbane and just behind Darwin at 2.7%, cities which all feature a significant resources and energy presence.

Housing price growth in the Eastern States over the 12 months to June 2014 could be described as strong (Adelaide, 5.6%) to stratospheric (Melbourne, 15.6%). Perth for once has been left behind, with a June quarter price fall of 0.2% taking its annual growth to 3.6%, below all the other State capital cities.

If you want to know whether the local share market is up or down, it depends on your timeframe. The All Ordinaries approached an 8 month low in mid-October at 5,121. Fast forward two weeks and it’s up by 6% and back to where it was a month prior, which is about where it was a year ago. The present period of volatility looks to be confined within a relatively narrow range, and it appears that the runs of previous years have given way to a pattern of sideways trading, at least for the moment. KLI Group believes that an active approach to selecting and buying stocks is preferable, given the current environment of volatility and uncertainty.

The official cash rate has been on hold at 2.5% for over a year, and given Glenn Stevens’ recent statement, the RBA appears keen to maintain the current ‘accommodative’ rate. However, the RBA will keep an eye the growth in house prices in the Eastern States, as we’ve mentioned earlier. Continued growth would increase pressure on the RBA to lift rates, but on the other hand, continued sluggish employment growth would make lifting rates a difficult decision.

Kelly Pillay is the Managing Director of KLI and a representative of Australian Financial Services Licence: 452054. This information is based on historical performance which is often not a reliable indicator of future performance. You should not rely solely on this material to make investment decisions.