Economic And Market Summary

The global economic outlook continued to improve in September. The economic data confirmed that the recovery has extended to all the major economies, prompting the International Monetary Fund (IMF) to raise its forecasts for world economic growth. The IMF expects the global economy to contract by 1.1% in 2009 (0.3 percentage points less than previously forecast), but grow by 3.1% in 2010 (an upward revision of 0.6 percentage points).

A key question has been how Australia’s economy would fare once the impact of Commonwealth cash handouts on retail sales fell away. The latest economic data provide reassurance and contributed to giving the Reserve Bank of Australia (RBA) sufficient comfort to raise its cash rate by 0.25% to 3.25% in early October. Major banks responded by raising their borrowing rates. Prices for interest rate futures indicate the RBA is expected to increase interest rates to 3.5% by the end of the year and to 5% by the end of 2010. 

In September, the stock market rallied further. The MSCI world share price index rose by 3.3% in September, the US S&P500 added 3.6% and the ASX200 gained 5.9% - a 7th successive gain for the local share market. In the September quarter, world markets gained 14.5% and the Australian market lifted 19.9%. Reflecting the improved conditions in financial markets, Banks were the strongest sector in the Australian market during the quarter (+35.6%), while mixed news on commodity prices caused Resources to lag (+11%).

The cost of wholesale funding has become less of an issue. In global and domestic capital markets, borrowing costs for many corporate borrowers have reduced and risk premia have fallen back to normal levels in some key markets. Moody’s expects global speculative grade (junk bond) defaults to rise from 11.5% in August to a peak of 12.6% in the December quarter of 2009.

The Commodity Resource Bureau (CRB) index of world commodity prices slipped 2.4% in September, but ended the quarter 3.2% higher overall. Industrial metals prices wavered in the face of signs of Chinese demand easing, albeit after a strong run: the copper price fell by 4.9% during September and the nickel price dropped by 6.6%. The oil price continued to oscillate between US$65/bbl and US$75/bbl as it had done for most of the quarter. The gold price increased by 5.1% to US$1002/oz in September, then pushed higher in early October to break the US$1040/oz level for the first time.

The Australian dollar remained well supported, ending September at US$0.88, equivalent to a 5.4% appreciation for the month and an 8.6% gain for the quarter. On a trade-weighted basis, the Australian dollar gained 2.9% in September and 5.4% for the quarter.

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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