Market Review

August 2019

After months of solid performance, global share markets softened over August as concern over the trade war between the United States and China escalated and confusion over the potential outcome of Brexit dominated markets. However, weakness in the Australian dollar ($A) helped Australian investors with overseas exposures, resulting in a small positive return for international shares over the month. The Australian share market on the other hand weakened by 2.4% as company profits generally disappointed. The silver lining for August was in fixed income markets, where the defensive nature of the asset class helped the Australian fixed income market return 1.5%, pushing the one-year return to 11.2%.

US/China trade war heats up

Although the US/China trade war has dominated headlines in recent months, it gathered another head of steam in August as China announced retaliation measures. President Trump responded by applying further tariff increases, causing markets to worry about where it all may end.

In addition to the trade war, there has been some evidence of manufacturing slowing down around the world, particularly in parts of the US and in Germany. The level of slowdown in US manufacturing is only mild at this stage, but it’s worthwhile monitoring to ensure it’s not the start of a deeper slowdown. At this stage, US employment remains strong, inflation is under control and it’s expected that the US will continue to grow at a decent pace, providing a positive lead for the global economy. If the US Federal Reserve were to cut interest rates again this would provide further stimulus for growth and confidence in the US market.

Australia: a return to a Current Status Surplus

Australia’s Current Account balance (the difference between the income we receive for the goods and services we export compared to what we pay for the goods and services we import) has been in deficit since the 1970s. As shown in the chart below, recent data from the Australian Bureau of Statistics showed that in the second quarter of 2019 our Current Account rose sharply into surplus (we received more than we paid out). This underscored the good fortune of the mining sector, with iron ore exports contributing strongly towards eliminating the deficit.

Demand for Australia’s resources are generally linked to demand from large and rapidly growing economies like China, so any deterioration in the US/China trade war has the potential to cause this surplus to quickly swing back to a deficit.

New Zealand cuts their Cash Rate

The Reserve Bank of New Zealand surprised investors last week, cutting the Official Cash Rate by 0.50% to 1.00%. In doing so they noted that “In the absence of additional monetary stimulus, employment and inflation would likely ease relative to our targets.” Investors were expecting a 0.25% cut.

The Reserve Bank of Australia (RBA) left the cash rate on hold at 1.00% as expected citing, among other things, subdued inflationary pressures, signs of a turnaround in the housing market and an increased rate of wage growth offshore.

European Instability

Continental Europe continues to feature on the minds of investors, due to the further instability in Italy where the resignation of Prime Minister Giuseppe Conte created waves as the ruling government parties broke apart.


Although August was a disappointing month for share markets, returns over the year have been remarkably strong despite the host of issues which have periodically gained headlines. Fixed income markets in particular have been exceptionally strong as interest rates have fallen, but going forward it is expected that returns from fixed income will be much lower. While there are a number of risks of which we are particularly mindful, with Brexit and the US/China trade war both key examples, we remain cautiously optimistic given the opportunities that economic uncertainty can create. The importance of maintaining a properly diversified portfolio is paramount, as is sticking with your long-term investment strategy, despite any short-term setbacks.



1 Bloomberg Finance L.P. Past performance should not be regarded as an indication of future performance.