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Dr Chris Caton: A global economic and market outlook

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Whether you’re an individual taxpayer, an avid investor or you’re involved in running a business we invite you to view this informative presentation by Dr Chris Caton.

Dr Caton provides a general global and domestic economic market overview, including all aspects of the world markets and factors which will affect all of Australia over the next 6 -12 months.

The presentation includes:
> Financial markets
> Interest rates
> Exchange rates
> The share market and
> The implications of the budget.

Published in: Business
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Dr Chris Caton: A global economic and market outlook

  1. 1. A global economic and market outlook Dr Chris Caton May 2015
  2. 2. 1 2015 Growth Forecasts (%) Month of Forecast M-14 J-14 J-14 A-14 S-14 O-14 N-14 D-14 J-15 F-15 M-15 A-15 Australia 2.9 3.0 2.8 2.9 2.9 2.9 2.9 2.8 2.7 2.7 2.6 2.6 New Zealand 3.0 3.0 3.0 3.0 3.0 2.9 3.0 3.0 3.1 3.0 2.9 2.9 US 3.1 3.1 3.0 3.1 3.1 3.1 3.0 3.0 3.2 3.2 3.1 2.9 Japan 1.3 1.2 1.3 1.2 1.3 1.2 1.3 1.2 1.2 1.3 1.1 1.0 China 7.2 7.1 7.2 7.2 7.1 7.1 7.1 7.0 7.0 7.0 7.0 6.9 Germany 2.0 2.0 2.0 2.0 1.8 1.5 1.4 1.3 1.4 1.5 1.8 1.9 UK 2.5 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.7 2.7 2.6 “World” 3.2 3.2 3.2 3.3 3.2 3.2 3.1 3.0 3.0 2.8 2.8 2.7 Source: Consensus Economics
  3. 3. Oil prices generally bounce hard 2 Source : ISI Evercore
  4. 4. Resources investment (% of GDP) 3
  5. 5. The terms of trade have come down a long way (index, 2012/13=100) 4Source Access Economics
  6. 6. 5 Real GDP growth in Australia and the US Source: Datastream -5 -2.5 0 2.5 5 7.5 10 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 US Australia Year to % change
  7. 7. Mining exports have been growing rapidly 6
  8. 8. 7 Financial Market Forecasts Now (1 May) End-Jun 2015 End-Dec 2015 AUD/USD 0.791 0.76 0.72 Official cash rate (%) 2.25 2.00 2.00 10 Year Bond yield (%) 2.65 2.75 2.90 ASX 200 5790 5750 5800
  9. 9. 8 The Australian Dollar and US Trade Weighted Index Source: Datastream 64 84 103 122 142 161 180 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 0.40 0.52 0.64 0.76 0.88 1.00 1.12 Index AUD/USD US TWI inverted (LHS) AUD/USD (RHS)
  10. 10. 9 Australian Share market Performance – ASX200 Source: Bloomberg 2500 3000 3500 4000 4500 5000 5500 6000 6500 7000 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
  11. 11. The Australian market is above fair value (forward p/e ratio) 10
  12. 12. But the P/E tends to be higher when the cash rate is lower 11
  13. 13. Share market volatility remains low 12
  14. 14. Australia has kept pace with the developed world ex US 13
  15. 15. We have been in almost perfect sync with the United States market, but may now be looking relatively a little cheap. 14 Source :Minack Advisors
  16. 16. 15 The labour market data are looking a little better. Has unemployment peaked? Source: ABS 8500 9000 9500 10000 10500 11000 11500 12000 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 000’s % Employment (LHS) Unemployment Rate (RHS)
  17. 17. Contribution to employment growth in the year to February 16
  18. 18. Western Australia’s share of national output has slowed; South Australia’s is in trend decline 17
  19. 19. Much of the fall, unsurprisingly, is in Capex 18
  20. 20. Residential building approvals have shown some growth 19
  21. 21. Unemployment has risen significantly in both WA and SA 20
  22. 22. Population growth has slowed significantly 21
  23. 23. 22 Australian inflation is not an issue Source: ABS 0 1 2 3 4 5 6 7 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Headline CPI Underlying inflation % BT Forecasts GST Effect
  24. 24. Household financial ratios 23
  25. 25. House Prices - Australia v Perth Source: ABS 100 150 200 250 300 350 400 450 500 550 600 650 700 750 87 89 91 93 95 97 99 01 03 05 07 09 11 13 Perth Australia Index (1987 = 100)
  26. 26. House Prices - Australia v Adelaide Source: ABS 100 150 200 250 300 350 400 450 500 550 600 650 700 87 89 91 93 95 97 99 01 03 05 07 09 11 13 Adelaide Australia Index (1987 = 100)
  27. 27. Australian houses are the biggest in the world (sq m per capita) 26
  28. 28. House prices have risen everywhere, particularly in Sydney ($’000s) 27
  29. 29. House price rises have been a capital-city story 28 Source: Minack Advisors
  30. 30. Prices have been rising rapidly in Sydney only in the past year (% increase year to March 2015) 29 Source : Core Logic RPData
  31. 31. Where’s the bubble? Average house price increase in the past ten years 30
  32. 32. Credit growth has picked up, driven by investors 31
  33. 33. The investors are now in charge 32
  34. 34. Investors have been piling in in New South Wales 33
  35. 35. Not much of the borrowing by investors finances new dwellings! 34
  36. 36. 35 Gross Domestic Product Source: ABS -1 0 1 2 3 4 5 6 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Qtly growth Year-to growth Non-farm year-to growth % BT Forecasts
  37. 37. 36 Source Consensus EconomicsSs: Consensus Economics GDP Inflation Australia 2.8 2.6 New Zealand 2.6 2.0 United States 2.5 2.0 United Kingdom 2.3 1.9 Sweden 2.2 2.0 Norway 2.1 2.2 Spain 2.1 1.4 Canada 2.0 1.9 Switzerland 1.5 0.9 Netherlands 1.5 1.6 Eurozone 1.5 1.6 Germany 1.4 1.6 France 1.4 1.5 Italy 1.1 1.4 Japan 1.0 1.5 Global Medium-Term Economic Growth and Inflation Prospects (2015- 2025)
  38. 38. 37 Asia-Pacific Medium-Term Economic Growth and Inflation Prospects (2015-2025) GDP Consumer Prices India 7.4 5.2 China 6.0 2.6 Indonesia 5.6 4.8 Philippines 5.3 3.9 Malaysia 4.7 3.2 Thailand 3.7 2.5 Singapore 3.2 1.7 Hong Kong 2.9 2.8 Taiwan 2.8 1.5 Australia 2.8 2.6 South Korea 2.7 2.2 New Zealand 2.6 2.0 Japan 1.0 1.5 Source: Consensus Economics
  39. 39. 38 Summary  The big question in the US is when will rates begin to rise and how quickly?  Growth prospects have improved in the Eurozone.  We will always worry about China.  The Australian economy should continue to experience only moderate growth. The mining investment boom has ended with no significant pickup to date in non-mining capex.  The cash rate is likely to fall again.  The exchange rate may fall further.  The Australian share market is above fair value.
  40. 40. Disclaimer This presentation has been prepared by BT Financial Group Limited (ABN 63 002 916 458) ‘BT’ and is for general information only. Every effort has been made to ensure that it is accurate, however it is not intended to be a complete description of the matters described. The presentation has been prepared without taking into account any personal objectives, financial situation or needs. It does not contain and is not to be taken as containing any securities advice or securities recommendation. Furthermore, it is not intended that it be relied on by recipients for the purpose of making investment decisions and is not a replacement of the requirement for individual research or professional tax advice. BT does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this presentation. Except insofar as liability under any statute cannot be excluded, BT and its directors, employees and consultants do not accept any liability for any error or omission in this presentation or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise noted, BT is the source of all charts; and all performance figures are calculated using exit to exit prices and assume reinvestment of income, take into account all fees and charges but exclude the entry fee. It is important to note that past performance is not a reliable indicator of future performance. This document was accompanied by an oral presentation, and is not a complete record of the discussion held. No part of this presentation should be used elsewhere without prior consent from the author. For more information, please call BT Customer Relations on 132 135 8:00am to 6:30pm (Sydney time) 39
  41. 41. Volatility has picked up in exchange rates 40

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