Economic And Market Summary

Global financial markets extended their rallies in May, with positive news on the state of the global economy. There were tentative signs that the worst of the global economic downturn may have occurred and some green shoots of recovery continued to emerge. In Australia, May data releases on unemployment showed a surprisingly high result, while GDP growth figures released in early June showed a positive result for the March quarter, remaining substantially better than other developed nations. However, there was also some bad news, including the filing for bankruptcy by General Motors, suggesting there remains a need for caution.

The Federal Budget in Australia showed a marked deterioration in the financial position, with large stimulatory expenditure and reduction in taxation revenue. Net debt is expected rise to around by 14% of GDP by 2012-13, although this still is low by developed world standards.

Reflecting the stimulatory impact of the Budget and signs of improvement in the economy, the RBA left cash rates in Australia unchanged at 3%. Some overseas central banks continued to cut interest rates, although they are increasingly turning to alternative stimulatory measures as rates reach historic lows.

Overall, credit conditions remain challenging but have improved. In government bond markets, yields tended to rise in response to improvements in economic indicators and the end of concerns about the threat of deflation. US 10-year Treasury note yields gained 34 basis points, ending the month at 3.46%. Australian 10-year bond yields rose 71 basis points in May as the RBA minutes indicated that the cycle of interest rate cuts was nearing or at and end.

Global stock markets rose 6% in the month, adding to the gains of March (6.5%) and April (10%). Emerging markets jumped 12% for the month, outperforming developed markets which gained 5%. The S&P 500 matched the developed market average, however Australian markets lagged, with the ASX200 gaining just 1%.

Commodity prices rose in May, with the price of gold advancing 8.6%.  The oil price (West Texas Intermediate) rose 29.7% while the price of natural gas gained 20.8%. Nickel gained 19.7% for the month – although is still down 47.8% for the financial year to date – 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. The Commodity Research Bureau index of commodity prices increased by 7.0% in May.

The rapid rebound of the Australian dollar continued, rising from US73c to US81c in May, or 10.5%, although this was partially due to a weaker US dollar, which was down 6.6% on a trade-weighted basis. The Australian dollar improved 6.0% on a trade-weighted basis, and by 6.4% against the Yen.

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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