Weekly Wrap 8 December 2019

This week we got the news that the Australian economy grew slowly. GDP growth in the September quarter of +0.4% was down from +0.6% previously.  Part of the issue is that households are saving rather than spending their tax returns.  The reduction to tax payable did not translate to a rise in discretionary spending, which led to a visible impact to household saving.  Insipid consumer spending, which increased just 0.1 per cent over the quarter led to the weakest performance since the global financial crisis. This doesn’t bode well for retail at Christmas!  The growth was from exports and government spending, particularly in health and disability services.  

When we consider the drought and the contribution to the economy perhaps the growth numbers are a little more understandable.  But anecdotally we all feel the softness in Australia. The Australian economy is still running at two speeds, but the divide now is between booming public spending and anemic private spending.

As expected, the RBA left rates unchanged.  Is there any real benefit from interest rates being lowered to nothing?  I think not.  Is this the start of a great unwinding of the surplus?  In a short time we will know.  One thing is for sure, the blunt instrument of interest rates isn’t having any effect.  It appears time for the big guns.

According to fund managers I speak to, the AGM season has been intense as prices have reacted to news quickly.  It has almost been like another reporting season.  So much for  continuous disclosure – all the market is doing is reacting to events, too late.  This is exactly why maths is so important to use to cut though the noise – our specialisation.

We are about to learn some new words if the North Korean leader Mr Kim gets really fired up.  In 2017, the two leaders engaged in tit-for-tat arguments, with Mr Trump dubbing Mr Kim “little rocket man” and “a madman”, while Mr Kim called the US president a “mentally deranged dotard”.  Mr Kim has put a year end ultimatum to Mr Trump – rockets and concessions are on the agenda.

Mr “Tariff” Trump has a new tariff target – Brazil!   It took China out of the limelight for a short while.  But in reality it is the biggest game in the world currently – and it didn’t take long to be the focus.  Earlier in the week, Trump rattled global markets when he said a deal might have to wait until after the 2020 election. This was because the Chinese believe that if the two sides reach a phase one deal, tariffs should be lowered.  Trump disagrees – lets face it, phase 1 will not solve any of the core issues that started this crazy situation in the first place.  Toward the end of the week Trump said the negotiations were “going along well”. Shocker!  Perhaps the North Korean leader is right.

Initially a deal was expected in November, ahead of a new round of U.S. tariffs set to kick in on December 15 (covering about $156 billion of Chinese imports). The pressure is on.

In impeachment news!  The formal articles of impeachment are now being drawn up. Ms Pelosi is taking a big step toward the expected end goal of a floor vote to impeach Trump. Given the Democrats’ majority in the House impeachment is now a near-certainty.  Two weeks ago we wrote about what that really means.

Lets not forget the UK election this coming week.

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