Economic And Market Summary

During August, global economic data suggested that the advanced economies were starting to expand, after experiencing a deep recession in late 2008 and early 2009. In the US, there has been improvement in key measures of business and consumer confidence over recent months, along with signs that the housing market has bottomed. Emerging market economies, which generally outperformed the advanced economies during the Global Financial Crisis (GFC), continued to expand in August.
 
Global stock markets continued the rally that began in early March 2009, reflecting factors such as improving economic data, better earnings outcomes, falling credit spreads and less risk aversion by investors. The US S&P 500 total return index rose by 3.6% in August, with the Financials (12.9%) and Industrials (4.1%) sectors experiencing the strongest gains. The more defensive sectors such as Utilities (0.2%) and Telecommunications (-2.4%) continued to underperform. In general, the stocks that fell the most during the GFC have rebounded the most during the rally over recent months. During August, the Australian equity market continued to rise sharply, with the S&P/ASX 200 price index increasing by 5.5%. 

While global stocks markets performed well in August, at times investors showed some concern about the sharp fall in Chinese stocks. After increasing by more than 100% since early November 2008, the Shanghai share price index fell by 21.8% in August, reflecting concerns that Chinese authorities may need to slow the economy. 

During August, Chinese authorities expressed concern that – due to the huge fiscal stimulus and credit expansion – some sectors of the economy may be overheating. Chinese industrial production rose by 10.8% over the year to June   production of cars is up by 55.2%, cement production is up by 21.6% and steel production is up by 19.4%. China’s domestic credit growth posted a large gain of 33.9% over the year to July.

Australian economic data was generally stronger than expected and as a result the consensus forecasts for Australian GDP growth over the near term have increased. The June quarter GDP data exceeded consensus expectations, with output growth expanding by 0.6% in the quarter to be 0.6% higher than a year earlier. The result reaffirms Australia’s relative economic success compared to other developed nations during the current downturn. 

Economic conditions in Australia have improved sufficiently for the futures market to price in a high probability of at least one interest rate hike before the end of the year. However, the major central banks are expected to wait until well into 2010 before starting to raise interest rates. Bond yields fell modestly in August – this was surprising given the developments in other markets – and credit spreads continued to narrow.

During August, commodity prices continued to rise, led by industrial metals. The Commodity Research Bureau index of global commodity prices gained 3.7%. The oil price finished the month near where it started at US$70/bbl. The Japanese yen was the strongest of the major currencies during August and the Australian dollar rose to US$0.84, a gain of 1%. 

Source: Access Capital Advisers Pty. Ltd

This article provides general information only and may not be relied on as legal or financial advice.

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