Economic And Market Summary

Financial and economic conditions continued to improve in November – economic data signalled a gradual recovery was underway in most advanced and developing economies. OECD forecasts for GDP growth in 2009 and 2010 have been revised upwards.

Global stock markets regained momentum during November given the broad improvement in world economic conditions, and despite concerns over Dubai’s credit default risk. The MSCI world share price index rose 2.9%, with emerging markets gaining a solid 3.2% and the S&P500 total return index posting a gain of 5.7%. In other major economies, the performance of share markets was generally positive: the UK market increased by 2.9%, the main German index gained 3.9% and the Chinese market rose by 16.7%. However, Japan’s Nikkei index was a notable exception, falling 6.9% during November due to concerns about the economic outlook.

Gains in Australia were smaller, with the ASX200 rising by 1.3% during November. By the end of November, the ASX200 was 50% above the low point reached in March 2009. Banking and financials continued to underperform retail and consumer staples.

The RBA increased the cash rate by a further 25bps to 3.5% in early November, continuing with recent decisions to lessen the degree of monetary stimulus. The Board noted that while inflation pressures persist, underlying inflation is expected to remain subdued. The latest economic data releases point to a gradual recovery – company profits fell for the fourth quarter and the pace of spending on business investment disappointed against expectations. However, retail sales, unemployment and car sales have improved.

Global bond yields fell during November, which appeared to be at odds with the rise in equity markets. The Australia-US 10-year bond spread narrowed, after peaking at 223bps mid-month. In corporate bond markets, there were further falls in risk premia.

As capital market conditions have improved over recent months, the use of bank credit facilities has eased and this is reflected in the decline in business credit growth. Australian corporates have focussed much of their attention on repaying debts to strengthen balance sheets and reduce gearing ratios and this has been at the expense of lending for acquisitions.

The Commodity Resource Bureau (CRB) index of world commodity prices rose 6.5% in November, due to strong demand for precious metals and industrial metals in the wake of improvements in the outlook for global economic growth. The gold price continued to rally throughout November (+ 12.2%) as fears of Dubai Government backed entities defaulting sparked a return by investors to safe-havens. Base metal prices experienced mixed results. Slower Chinese demand growth for nickel and steel has seen these prices fall from their August peaks.

The US dollar continued to slide during November, depreciating a further 1.2% on a trade-weighted basis – the Japanese yen continued to strengthen against the US dollar (increasing 5.4%). The Australian dollar remained at US$0.91, but depreciated 2.3% 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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