Political uncertainty in the United States, higher oil prices, and a spike in domestic inflation resulted in the Australian share market falling in value for the second month in a row. The benchmark All-Ordinaries index fell by 3.6% in September, closing the month at 7,249.7 points.
Global share markets were generally weaker in September, with the United States Dow Jones Index falling 3.5%, the Hong Kong Hang Seng Index falling 3.1% and the Japan Nikkei 225 falling by 2.3% for the month. The London FTSE was the exception, gaining 2.3% in September.
The Reserve Bank of Australia (RBA) Board once again kept the official Cash Rate on hold at 4.10% per annum in September. The Australian Dollar fell by 0.8% in the month against the United States dollar, with 1 Australian Dollar buying 64.3 United States cents.
The threat of a federal government “shutdown” in the United States eased on the weekend after the House of Representatives quickly approved a temporary funding bill to keep United States agencies open. However this, along with a spike in bond yields and higher oil prices, has created uncertainty in investment markets.
The chart below shows the price history over the past year for a barrel of Crude Oil in United States Dollars.
As can be seen from the above chart, oil prices have surged by almost 30% since June, after Russian and Saudi Arabian production cuts have been extended. Higher oil prices flow through into higher petrol and diesel prices, driving up transport costs, and feeding into higher inflation and potentially higher interest rates.
Australia is already feeling the heat from higher global oil prices with automotive fuel prices surging 13.9% in the 12 months to August, and annual inflation accelerated for the first time in four months, jumping 5.2% in the year to August (up from 4.9% in July).
While new RBA Governor Michele Bullock is almost unanimously expected to keep the official Cash Rate unchanged at 4.1% per annum when the RBA Board meet later today, there are plenty of reasons to closely watch the statement accompanying her first interest rate decision.
Debate about whether the RBA Board needs to deliver one more increase continues to rage among market economists, so they will be looking for any clues about the new Governor’s assessment on the economy and rates following today’s meeting.
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This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation, and investment objectives.