Economic And Market Summary

Financial markets continued to strengthen over the first quarter of 2010. The functioning for capital markets has improved significantly over the past year, with prices for risky assets generally rising relative to risk-free assets. Bank financing has been slower to recover; business credit continues to contract, albeit at a reduced pace, reflecting firms deleveraging and taking advantage of buoyant capital markets to raise funds.

Despite sizeable losses in the first month of 2010, global stock markets posted solid gains over the March quarter. The MSCI world share price index ended March up 6.2%, the largest monthly gain since July 2009, gaining 3.8% for the quarter. Developed markets were up 4.2% over the quarter and emerging markets reversed two months of declines in March to be up 1.1% over the quarter. The US benchmark index, the S&P500, rose by 5.9% over March (to 1169), following a rise of 2.9% in February. Volatility declined 4.1% over the quarter. The ASX200 rose by 5.1% in March but did not regain the ground lost in January and, consequently, ended the quarter up just 0.1%.

US bond yields increased in March amid the strengthening economic climate – the 10-year bond yield increased 21 basis points to end the month at 3.83%, and is now on par with yields seen in mid-October 2008. The domestic market saw Australian 10-year bond yields rise by 35 basis points to end the quarter at 5.78%. Strong Australian data continued to see investors move away from safe haven assets, pushing down the price of Australian government debt. Corporate bond spreads continued to narrow over March, to be down over the quarter for both highly rated credits and riskier credits. In both the US and Australian corporate bond markets, riskier issuers saw the largest falls in premiums.

The CRB index of world commodity prices rose by a moderate 0.9% in March to be up 2.4% over the quarter, led by strong gains in base metals – steel was up 21.8% over the quarter and nickel was up 35.3% over the quarter. The RBA Index of Commodity Prices gained 2.6% over the first quarter of 2010 with most of the gains occurring in the early part of the year. Gold prices were down 0.3% to US$1109/oz over March, and oil prices gained 5.1% to end the quarter at US$84/bbl.

The Australian dollar ended the quarter at US$0.92, after appreciating 2.8% over March. Strong domestic economic news, commodity price gains and rising interest rates continue to put upward pressure on the Australian dollar. The US dollar lost 0.7% on a trade-weighted basis over March, reflecting the strengthening Canadian dollar, but appreciated 4.5% against the Yen. The Sterling is now close to a 12 month low against the dollar.

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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