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Economic and Asset Class update. January 2012 - <Adviser Name>. <Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd. Economic and Asset Class update. January 2012 - <Adviser Name>. <Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd.
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Economic and Asset Class update January 2012 - <Adviser Name> <Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd
Economic and Asset Class update January 2012 - <Adviser Name> <Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd
Economic and Asset Class update January 2012 - <Adviser Name> My Name Financial <Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd
Economic and Asset Class update January 2012 - <Adviser Name> JV logo <Adviser name> is an Authorised Representative of RI Advice Group Pty Ltd
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Economic & Asset Class Update January 2012
Economic highlights • US economic data surprised and the growth performance is expected to be marginally better than last year. • In Europe, the fundamental uncertainty about sovereign and bank solvency as well as the survival of the currency is making a recession appear more likely. • Unemployment continued to rise in Europe to 10.3% coupled with inflation prompted the ECB to cut rates. • Emerging Markets continue to be impacted by concerns surrounding the slowdown of China and the impact on exports due to the slowdown in Europe. • In Australia the RBA’s recent interest rate cuts has seen consumers looking to reduce debt levels rather than boosting consumer spending. Source: OptiMix Economic Highlights and Asset Sector Review – December 2011 Based on information provided by the OptiMix Multi Strategies Team
United States: key stats Source: TradingEconomics.com; Bureau of Economic Analysis As at January 2012
United States: Employment • Nonfarm payroll employment rose by 200,000 in December. • The unemployment rate, at 8.5%, continued to trend down, the U.S. Bureau of Labor Statistics reported. • Job gains occurred in transportation and warehousing, retail trade, manufacturing, health care, and mining.
Developed world recovery has been lacklustre US GDP Cycles – Pre-recession Peak = 100 Range of 8 previous cycles Current Cycle Quarters since peak in GDP Source: Thomson Financial Datastream & INGIM OptiMix 11
Federal Reserve is a long way from meeting its mandate Source: Thomson Financial & Bloomberg
Broad based weakening in Euro area activity Source: Bloomberg & INGIM OptiMix
Aftershocks of 2008-09 GFC continue to impact Burden of high private sector debt was passed on to Governments Banking sector in Europe was never recapitalised Solutions are long term in nature History has shown it takes up to 10 years for debt reduction to occur Authorities need to redesign the entire Euro area framework Policy mix is poor Sizeable fall in Government spending in most major developed markets Monetary policy left to carry the burden (blunt instrument, most bullets fired) Result: muddle through is best case with growth at or below potential Developed marketsoutlook Source: Panning for Gold in a River of Mud – November 2011 Lewis South, Senior Portfolio Manager, OptiMix Multi Strategies Team
Business surveys point to slow growth in the US Source: Thomson Financial & INGIMOptiMix
Fiscal austerity dragging on growth Source: OECD, IMF & INGIM OptiMix Source: Panning for Gold in a River of Mud – November 2011 Lewis South, Senior Portfolio Manager, OptiMix Multi Strategies Team 16
Debt problem is a big issue in Europe Source: BIS & INGIM OptiMix
Italy is fast approaching the point of no return Source: Bloomberg
China: key stats As at 28 November 2011
Recent slowing in China has been driven by the Gov’t Source: JP Morgan
Gov’t debt is low compared to developed economies Source: JP Morgan * includes local government debt
Chinese inflation has now peaked Source: Thomson Financial & Bloomberg
Changing structure of global economy Contribution to aggregate world GDP 2000 2010 Source: IMF & INGIM OptiMix
If history is a guide, China has a long way to go Per capita GDP (Start of major development phase = 1) Japan South Korea China Source: Conference Board & INGIM OptiMix 24
Infrastructure still needs to be built Source: Google & INGIM OptiMix
Global GDP will be very different again by 2020 Contribution to aggregate world GDP 2010 2020 Source: IMF & INGIM OptiMix Source: Panning for Gold in a River of Mud – November 2011 Lewis South, Senior Portfolio Manager, OptiMix Multi Strategies Team
Australia: key stats Source: TradingEconomics.com; Australian Bureau of Statistics As at 30 November 2011
RBA is currently achieving its goals Source: ABS, RBA & INGIM OptiMix *Headline prior to 1983
Investment growth strong, dominated by mining Source: ABS & INGIM OptiMix
Negative side effect from China’s boost Source: ABS & RBA
Australia - Multi speed economy Source: ABS & INGIM OptiMix
Consumption has not been as weak as retail data suggests Source: ABS & INGIM OptiMix
Markets are pricing significant rate cuts Source: RBA & JP Morgan *OIS pricing as at 23rd November 2011
But the bond market has been right the last five years Source: Bloomberg
Developed economies Significant challenges ahead, with growth likely to only be modest at best China Short term concerns have been overplayed Long term drivers remain very positive Australia We have benefited, and continue to benefit, from the China story But not everyone benefits, with multi speed economy likely to remain a theme for some time Market outlook: Equity market looks cheap but bond markets say be wary Summary
World economy – key economic indicators Real GDP Growth – year ended Source: Reserve Bank of Australian Chart Pack December 2011
World economy – key economic indicators Core Consumer Price Inflation* Year ended Inflation Year ended Source: Reserve Bank of Australian Chart Pack December 2011
World economy – key economic indicators Unemployment Rate
Australia – GDP Growth and Inflation GDP Growth Consumer Price Inflation*
Australia – Household Sector Retail Sales Growth Housing Loan Approvals*
Market Labour Force Employment
Australia – Commodity Prices RBA Index of Commodity Prices 2008/09 average = 100, SDR Commodity Prices SDR, 2003 average = 100, weekly
World interest rates over time Source: RBA, BOJ, ECB http://www.fxstreet.com/fundamental/interest-rates-table/ As at 31 December 2011
World interest rate movements in detail • The Reserve Bank of Australia eased monetary policy in early December, cutting the official cash rate by 0.25% to 4.25%. Source: RBA, BOJ, ECB http://www.fxstreet.com/fundamental/interest-rates-table/ As at 31 December 2011
Interest rates US Bond Yields 3 – 5 years US Bond Spreads To US government bonds, 3–5 years Source: Reserve Bank of Australian Chart Pack December 2011
Interest rates Australian Bond Yields* Australian Bond Spreads* Spread over government yields, monthly Source: Reserve Bank of Australian Chart Pack December 2011
Currency movements Source: DataStream As at 31 December 2011