AMP Capital Investors December 2009 Investment brief
With the global economic recovery well underway now, focus has turned to the sustainability of the recovery. Policy support will not remain indefinitely and authorities are already clearly signalling the winding down of emergency lending programmes introduced during the financial crisis.
Global Review:
- Hopes remain for a self-sustaining recovery to continue developing, with data showing that the US labour market is continuing to improve and growth remains strong in emerging market countries.
- In the US, employment fell by less than expected in November, the unemployment rate fell to 10.0%, and weekly unemployment claims continued to trend lower. Consumer confidence rose, although from still-depressed levels, and retail sales data surprised on the upside. Housing data were mixed, with builder's confidence low, a big increase in existing home sales, but a big fall in new home sales and a further modest gain in house prices. Headline ISM indicators, which measure whether the manufacturing economy is contracting or expanding, fell in November. However, new orders for manufacturers rose, while auto sales and industrial production also continued to trend higher. US gross domestic product (GDP) growth for the September quarter was revised down from an annualised 2.8% to 2.2%, but indicators were pointing to over 4.0% growth in the December quarter.
- Euro area data were mixed. Readings for employment, construction and industrial production were soft, but business confidence improved. The EU manufacturing PMI (which measures the performance of the manufacturing economy) rose to a 20-month high, while Germany's Ifo index rose to a 17- month high. Greece's sovereign credit rating was revised down to BBB+ by Fitch Ratings and Standard & Poor's. This raised a debate about Greece's long term viability as a member of the Euro area.
- Asian economic data tended to remain strong. China led the way, with industrial production growth of 19.2% year on year (yoy) in November. Industrial production growth in India was up 10.3% yoy. With the global economy recovering, export data in the region continued to show improvement. Japan's GDP for the September quarter was revised down significantly, from 1.2% quarter on quarter (qoq) to 0.3% qoq.
- On the policy front, the Reserve Bank of Australia increased the cash rate for a third successive month, up 25 basis points (bps) to 3.75%. That country remained an outlier compared to the major central banks, which continued to signal very low rates for some time. However, the US Federal Reserve (Fed) and the European Central Bank (ECB) signalled that liquidity programmes introduced during the financial crisis were being phased out. The Bank of Japan (BoJ) took the opposite stance, with new quantitative easing measures to prevent further defl ation and Japan's government also introduced another fiscal package to support the economy.
Global Outlook:
The global economic recovery is expected to broaden and intensify over the next six months. However, we will need to see a more meaningful pick-up in final demand, otherwise the recovery so far - driven by temporary fiscal stimulus and changes in inventories - will not be sustained.
Read the full AMP Capital Investors December 2009 Investment Brief.
AMP Capital Investors