Aura Group

AURA GROUP

News and Insights

Aura Global Insights – Issue No. 27

 

HUMPTY NOT DUMPTY (RECESSION)

The storyline remains colourful with the recent attack by Iran on Saudi Arabia’s oil infrastructure, trouble in the repo market, and the Federal Reserve (Fed) cutting its benchmark short-term interest rate to a target range of 1.75% to 2.00%, with an uncertain future policy. Yet the US equity markets have proven resilient.

To reiterate previous comments with respect to the Fed, Chair Jerome Powell indicated concern over slowing global growth and trade uncertainties but said the Fed stands ready to “act as appropriate to sustain the expansion.” The communication from the Fed is that we are not on the brink of a recession. Economic numbers have been good with housing starts and building permits in August hitting their best levels in more than 10 years and the increase in industrial production recently being the largest gain of the year.

The key to the US economy and the financial markets is in the wallets of the consumer. US unemployment at 3.7% is at the lowest level in 50 years. Wage gains have climbed to 20 year highs and consumer confidence remains at a historically high level. The largest threat to the markets is the negative effects of the ongoing trade war (spilling into the manufacturing sector) and weak global growth which could slow the trajectories of corporate profits and cut into business and consumer confidence.

Deteriorating trends in the manufacturing sector garner plenty of attention however, its primacy is somewhat fading as non-manufacturing business activity is increasing and taking up the slack. Non-manufacturing activity is relatively robust and economic data overall has shown a renewed ability to surprise to the upside.

The bottom line: Whilst the US economy is showing quite a bit more Humpty than Dumpty (vivacity) than it is being given credit for, excessive investor optimism argues that stocks may experience a consolidation phase before the current equity rally continues.

Andrew Coloretti

If you have any questions please contact one of the team on +61 2 9199 8860 or info@aurawealth.co


This is communication is provided for informational purposes only by Aura Wealth Pty Ltd (AFSL 380552) and is of a general nature only. Accordingly the information provided does not take into account your investment objective, financial situation or needs. You should seek professional advice before making any investment decisions and consider whether the information is appropriate in light of your objectives, financial situation and needs.  The views and opinions expressed in this material are those of the author as of the date indicated and any such views are subject to change at any time based upon market or other conditions. The update may contain certain statements deemed to be forward-looking statements, including statements that address results or developments that Aura expects or anticipates may occur in the future. Any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected in the forward-looking statements. Past performance is not a reliable indicator of future performance.