CFS Market Insights: Business wary ahead of possible US Sept rate cuts

Welcome to CFS Market Insights.

To start off, we'll talk about what’s been going on in the US where we’ve actually seen some mixed economic data in the last month or so.

Inflation remains a focus, and July data has shown that inflation has been holding steady but there were some increases in prices, particularly on the retail side of things, and a notable uptick in core inflation.

Jobs growth has been a focus for investors in recent weeks, and recent numbers have been well below expectations.

We do think that this is actually an indication that businesses are unwilling to commit to significant new investments and growth due to the erratic policy decisions we’re seeing out of the administration.

One of the other areas that has got investor attention and has been creating some instability has been President Trump's increasing criticism of the Federal Reserve – the US central bank.

Recently, in an unprecedented move, Trump took this a step further and removed one the governors of the Federal Reserve, Lisa Cook.

Markets have been remarkably resilient through the last four to six weeks, and that shows that people are more focused on the direction of interest rates than on who is making the decisions.

Turning closer to home, the Australian government recently hosted an economic roundtable that brought together government, industry, and business to discuss productivity and also economic resilience.

Those discussions have highlighted several key issues facing the economy including the need for infrastructure investment, the importance of addressing housing affordability, and also supply constraints.

Despite some of the headlines, we do expect that it will take some time for any policy decisions to emerge from these negotiations.

There’s been a strong focus on the earnings season in Australia and overall it’s probably been a little bit of a mixed bag, with some sectors performing strongly while others have actually shown some real earnings weakness.

The highlights have probably been the mining sector which has shown strong results on the back of higher commodity prices and also strengthening demand.

Financial services in general have remained stable with banks reporting solid earnings and, importantly, maintaining strong capital positions.

The area that’s had probably the greatest challenges remains retail and consumer goods, and that’s due to changing consumer behaviour and also supply chain disruptions.

One thing that has been notable in this reporting season is where investors have dealt harshly with companies that have performed below expectations.

Two such companies, CSL and James Hardy, saw very significant share price declines off the back of earnings results and forward-looking guidance.

If we look at what’s coming up next, and as we move into the Northern Hemisphere fall, the Federal Reserve will meet towards the middle of September to make a decision on interest rates.

There have been indications from the Fed Chair, Jerome Powell, that a rate cut is more likely as economic data has become weaker.

Markets have very much priced that in, in recent weeks, and have also suggested there may be a further interest rate cut in the US before the end of the year.

As we’ve also previously mentioned, European economies will be returning to business after the summer months.

We do expect some of the issues that have been on the backburner to come back into focus for investors, for example, the French budget deficit. At the same time, we’re also seeing a vote of confidence against the French government in the next two weeks or so.

As the second largest economy in that region, France is obviously a very significant contributor to economic growth in Europe and there is the potential that you’ll see some market impact from those discussions around the fiscal position and also the stability of the government.

It’s a reminder that at CFS, we continue to focus on building portfolio resilience through diversification and strategic investments so that we can continue to deliver for our members through different market environments.

Thanks for watching CFS Market Insights. See you next time.