November provided some excitement in financial markets, with the price of oil declining sharply to below US$70 a barrel. This had a further dampening impact on inflation expectations which helped bond markets rally a bit further. Combined with recent declines in the price of iron ore the decline in the price of oil hurt the assets of commodity producing nations such as Australia. It is no surprise then that both the Australian equity market and the Australian dollar fell in November. The $A/US$ fell to US$ 0.851 by the end of November.
These forces, plus ongoing signs of weakness in the household sector and the labour market, contributed to a number of commentators revising down their forecasts for Australian economic growth in 2015. Some of these commentators also started talking about the Reserve Bank’s next move on interest rates being down rather than up. However at its meeting on to December, the Board of the Reserve Bank decided to leave the cash rate unchanged at 2.5% and repeated the message of stability in monetary policy settings for some time.
Economic momentum in the US remained generally positive while conditions in Europe and Japan continued to be challenging. However, the ECB and Bank of Japan have indicated their intention to provide further liquidity support to their economies.
Overall, the global environment still appears to be one of improving growth and low inflation and accommodating monetary policy. Conditions like this have previously proved favourable for equity markets.