Investment markets have continued to perform well this May. Equities remain ahead for this time of year, whilst bond yields have fallen unexpectedly. This has resulted in capital gains for domestic and international investors. Domestic bond yields could continue to fall because of the continuance of low short term rates and inflationary expectations, and high volumes of bond purchases. Projections suggest that the business cycle is faring well internationally, although it may not be as strong as 2018.The main risk to international business is the uncertainty of the outcomes of US-China trade talks.
The domestic business cycle has weakened, which will likely prompt interest rate cuts from the Reserve Bank. Although it did not change the cash rate on May 7, short-term and long-term interest rates have fallen. The Australian dollar has also weakened slightly. It is likely that the Reserve Bank will make one or two 0.25% cuts in the second half of the year to increase inflation to between 2% and 3%. The value of the Australian dollar is likely contingent on the outcomes of the US-China trade talks.
In property, sentiment in the commercial sector has taken a negative turn, especially in retail and central city hotel sectors. A-REITs have performed well recently, and are likely to continue to do so. Property conditions differ significantly around the globe, with stronger markets in Central and Eastern Europe, India, and parts of Asia and weak spots in London and New York. However, many property markets are now expensively valued according to a survey by the Royal Institute of Chartered Surveyors.
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