Economic And Market Summary

Tentative signs that the worst of the global economic downturn may have occurred continued to emerge in April.  Risk aversion decreased in the face of fresh signs from the major economies that the recession and financial crisis may be receding.  In Australia, data releases in early May for retail sales and unemployment in Australia for April were surprisingly healthy.  However, gloomy new forecasts from the IMF and some further bad news such as the filing for bankruptcy by Chrysler, served as a reminder that there is still reason for caution.

Governments further extended stimulatory measures in April, including Australia where tax bonuses were rolled out, and the G20 nations which promised additional support.  Central banks variously continued to cut official cash rates, albeit at a slower pace than in recent months, as well as using other stimulatory measures.  In early April, the RBA cut the cash rate by 25 basis points to 3%, the lowest level since 1960 and the ECB also cut by 25 bps to 1.25%.  While the Bank of England, announced a programme of asset purchases to be financed by the issuance of central bank reserves.

Financial markets reflected the improved sentiment.  Overall, credit conditions remain challenging, but have improved.  In government bond markets, yields tended to rise as the mood in financial markets lightened.  US 10-year Treasury note yields gained 44 basis points, ending the month at 3.12%.  Australian 10-year bond yields rose 16 basis points in April, as the RBA minutes indicated that the cycle of interest rate cuts was nearing or at an end.

Global stock markets rose 10% in the month, although they still are down 41% for the financial year to date.  By the end of April, the S&P500 and the ASX200 neared 2009 highs.

Increased appetite for risk was evident in base metal prices, however commodities more generally were mixed.  The price of gold – often a safe haven during times of stress – fell a further 3.5% in April.  The oil price (West Texas Intermediate) rose 2.9% but the price of natural gas was down 10%.  Nickel gained 22.3% for the month – although is still down 56.4% for the financial year to date – while copper gained 11.9% and aluminium 4.8%.  The CRB index of commodity prices increased by 5.5% for the month.

In currency markets, the Australian dollar continued to recover recently lost ground and finished the month up 4% on a trade weighted-basis.  The Australian dollar gained 5% against the US dollar and 6.4% against the Yen, making gains against all the major developed currencies.

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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