Economic And Market Summary

The global economic recovery which commenced in mid-2009 continued in December. The recovery has been underpinned by less risk aversion by consumers and corporates and very stimulatory monetary and fiscal policy. The rebound in growth has been sharpest in the emerging market economies (for example, China). Reflecting its strong linkages with the Chinese economy and stimulatory policy, Australia has also experienced a material rebound in growth over recent months. 

In Australia, the Reserve Bank of Australia increased the cash rate by 25 basis points – to 3.75% – for a third consecutive month. The RBA noted the downturn in Australia was relatively mild, with measures of confidence signalling an economic recovery (business confidence reached its highest level since 2002). Deputy Governor Ric Battellino noted monetary policy has moved from emergency levels back towards a more normal stance. The latest ABS data indicates the economy grew by 0.2% during the September quarter and the November unemployment rate eased to 5.7%.

Financial markets maintained a broad improvement during December with global stock markets reaching their highest levels for 15 months. The MSCI global share price index rose 3.6% for the month (led by emerging markets). Overseas stock markets made broad gains – the UK gained 4.3%, Germany was up 5.9%, China rose by 2.6% and Japan’s Nikkei increased 12.8%. The S&P500 consolidated during December, gaining 1.8% as volatility continued to decline amid strengthening US economic data. The Australian market saw the ASX200 rise by 3.6% over the month, after peaking at 4870, a level last seen in September 2008.

Global bond yields increased in December reflecting the improved economic outlook, particularly in the US. US 10-year bond yields jumped to 3.84%, the highest level since early August and Australian 10-year bond yields rose to 5.64%. The Australia-US yield spread continued to narrow during December, ending the month at 181 basis points, the lowest level since April. In corporate bond markets, interest rate spreads over government bonds decreased. 

The Commodity Resource Bureau (CRB) index of world commodity prices rose by 1.6% in December, as strong gains in industrial metals were partially offset by the declining price of gold (-5.8% to US$1105). Demand from China continued to bolster commodity prices over the month, with the CRB index reaching levels last seen in September 2008. The oil price finished the month up 2.7% to US$79/bbl reflecting declining inventories in the US. Nickel and zinc continued to post solid price gains and steel prices increased by 8.6% during December, following two consecutive months of declining prices.

The downward trend in the US dollar was interrupted during December. The US dollar rose to a three-month high against the yen as US economic data were better than expected. The Australian dollar ended the month at US$0.90 (down 1.4%), but appreciated 0.9% on a trade-weighted basis.

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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