Markets Are Accelerating

This is great for all asset classes including property. We all know how well connected the world is today. Any event is telegraphed, sorry, “typed” onto the world screen instantaneously. Investor sentiment is no longer segmented the way it once was. People’s emotions are assaulted constantly, and this means fear in one market can quickly flow into another.

At the moment though, we are seeing tremendous stock market acceleration. Germany just made new two year highs this week, and the US went from just making steady new historic highs, to incredibly rapid movement higher. Even Australia had a big move higher. We have been forecasting this for a while, but still, there are people out there trying to sell fear.

As I keep saying; we are living in the midst of the most prosperous period in history! We are very fortunate indeed. The big economic news was really a non-event this week. That is, it was widely expected that the US Federal Reserve would leave rates on hold at the dizzying heights of just 1.25%? Yes, its a boom economy with full employment and corporate profits at record levels, but their core interest rate is just 1.25%.

Imagine where the Reserve Bank of Australia would model their cash rate to be in such a strong economy? Hopefully, they will figure out their modelling is useless before we get there.

The US Federal Reserve will be raising rates though, at its next meeting in December. This will take their Fed Funds Rate to 1.50%, where it will likely stay for much of the first half of next year.

It remains the case as we forecast, that the world is experiencing strong economic growth with low inflation. So there is no place for the high-interest rate settings of the previous century.

In Australia, Retail Sales were flat, 0%, in September. This comes after a very negative revision downward of the previous month to -0.5%. These are not great numbers. It was interesting to see, however, that department store sales were up 2.1%. So there are people shopping.

The good news was that Australia's trade surplus doubled to $1.75 billion in September. This is a very healthy trend and bodes well for the future.

These two numbers though, flat retail sales and the strong trade surplus, just go to show how it is China and the rest of the world, which is mostly driving our overall economy. We clearly need to be doing more domestically. That’s difficult when we seem to have merely a care-taker government most of the time.

Overall, the central themes remain the same. The world is booming and Australia is strong too. Just not as strong. What is most clear of all, however, is that we will remain in a low-interest rate environment for as far as the eye can see. In such an environment the property market will continue to do extremely well.

Clifford Bennett