Economic And Market Summary

Global economic news in February was mixed, with recent optimism over the stronger economic outlook moderated by European fiscal worries and ongoing job losses in the United States. In Australia, the Reserve Bank of Australia (RBA) surprised markets in early February by leaving the cash rate at 3.75%, arguing that the full impact of previous rate rises had yet to be felt.

Global financial markets are functioning considerably better than they were a year ago – thanks in large part to the degree of support and stimulus provided by central banks and governments. Financial markets as a whole are recovering in line with economic developments despite weak credit growth in most major economies. As a result, the extraordinary support measures deployed by governments and central banks during the Global Financial Crisis (GFC) are now gradually being unwound. In Australia, most of the measures the RBA employed have been completely removed and the fiscal stimulus is being progressively withdrawn.

Global stock markets rose in February, but failed to recover all of the January losses. The MSCI world share price index increased by 1.5% in February. In contrast to recent months, developed markets led the way (up 1.8%), while emerging markets continued to decline (down 0.3%). The US benchmark index, the S&P500, posted a gain of 2.9% to end the month at 1104 and the ASX200 gained 1.5% in February, after rallying 4.7% in the early weeks of the month. Volatility declined over the month as markets saw evidence of a strengthening financial system.

Global bond yields fluctuated within a 20 basis point range during February as markets were contained by positive economic news on one side and concerns about continuing policy uncertainty and Greece’s dire fiscal position on the other. US 10-year bond yields ended the month up 3 basis points at 3.61%. Solid Australian economic data – particularly the surprise strength in employment figures over January – saw local bond yields rise by 6 basis points. In the US corporate bond market, spreads narrowed with the largest falls experienced by highly rated securities. The Australian corporate bond market, on the other hand, saw spreads widen.

The Commodity Research Bureau (CRB) index of world commodity prices (in US$) rose 2.9% in February, due to strong demand for oil and industrial metals as the global economy strengthened and US manufacturing lifted. Gains were led by nickel (up 14.4%), lead (up 6.9%) and copper (up 6.6%), as demand from China picked-up in the latter part of the month. In Australia, the RBA’s Index of Commodity Prices (in US$) fell by 1.1% over February. Prices rallied 9.3% in the oil market, to end February at US$80/bbl, and the gold price finished the month up 2.8% to US$1112/oz.

The US dollar rose against European currencies, but fell against the Yen. The Australian dollar ended February at US$0.89, after losing 0.3% over the month. The RBA’s surprise decision to leave the cash rate unchanged in early February saw the Australian dollar come under some pressure.

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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