Economic And Market Summary

The rally in financial markets lost momentum in June as hope faded for the global economy making a swift transition from stabilisation to sustained upswing. News about the state of the global economy was mixed, illustrated by seemingly conflicting revisions to ‘official’ growth forecasts by the World Bank (down) and OECD and IMF (up). In Australia, data releases mostly confirmed that the domestic economy is proving resilient.

Prices for riskier asset classes fell towards the end of June and into early July, as questions surrounding the sustainability of the economic recovery resulted in a preference for safer investments such as government bonds. The lack of a clear upswing in economic activity, combined with rising prices, has diminished incentives for buyers as they are indicative of lower future returns.

The RBA saw no need to reduce the official interest rate below 3% at either its June or July meeting, noting signs of stabilisation in the economy and that the effects of past easings have yet to be observed. Fewer central banks overseas cut rates than in recent months, increasingly turning to alternative stimulatory measures, such as buying government bonds and high-rated corporate debt, as rates reach historic lows.

In government bond markets, yields rose further as concerns about the threat of deflation eased. US 10-year Treasury note yields gained 7 basis points, ending the month at 3.53%. Australian 10-year bond yields rose 24 basis points to 5.52% in June as the RBA minutes provided stronger indication that the cycle of interest rate cuts was at an end.

Global stock markets fell 0.2% in the month, but posted their first quarterly gain (16.3%) since September 2007. Emerging markets share prices fell 1.5% for the month, with marked variation between countries, for example the Chinese market gained 12% and the Indian market lost 1%. Developed markets dropped just 0.2%. The S&P500 was flat, while the Australian market outperformed the average, with the ASX200 gaining 3.6%.

For the June quarter, Australian share prices rose 10%. The better economic news and a number of successful capital raisings contributed to the market-leading performance of consumer discretionary, real estate investment trusts and industrials. Resource stocks outperformed non-resource stocks in the first half of 2009. 

Commodity prices were mixed in June. The price of gold eased 2.3%. The oil price (West Texas Intermediate) rose 5.4% while the price of natural gas dropped 6.6%. Nickel gained 16.3% for the month and 70.2% for the June quarter – although still ended the financial year down 39.3% – while copper gained 5.8%.  Wheat prices improved 18.2%. Iron ore prices fell, with Rio Tinto accepting a 33% cut in the price paid by Japanese steelmakers for iron ore. The CRB index of world commodity prices increased 0.6% for June, and 13.6% for the quarter.

The Australian dollar consolidated in June, trading between US$0.785 and US$0.815. In the June quarter, the A$ rose from US$0.69 to US$0.81 and the TWI rose from 57.4 to 64.7.

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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