Economic And Market Summary

Equity markets have enjoyed a strong rally since mid-2010 and continued this positive performance in the first half of February. However, equity markets gave back some of the gains over the second half of the month over concerns regarding rising tensions in the Middle East, increasing oil prices and higher inflation. Over the course of the month, the S&P 500 was up 3.2% and the MSCI World Price Index was up 2.8% in local currency terms. The potential for global oil supplies to be disrupted due to unrest in the Middle East is a risk facing markets given that higher oil prices would be expected to slow economic growth.

Within the US, the closely watched ISM Manufacturing and Services indices were higher in February, adding to several months of improvement. These economic indicators are at levels consistent with a strong economy and are the highest that they have been for several years. The improved outlook has occurred following substantial fiscal and monetary stimulus which is unlikely to be sustained in the longer term in light of the current political climate. Many state and local governments have begun to impose greater fiscal restraint and at the Federal level, the Republicans are pushing for large scale spending cuts.

Although US unemployment figures remain high, some leading indicators suggest that the US may soon see meaningful job creation with February non-farm payrolls (a key measure of US jobs growth) providing one of the strongest jobs growth outcomes for the US since the Global Financial Crisis. That said, the current high level of  unemployment coupled with ongoing weakness in consumer confidence and spending suggest that it may be some time before we see unemployment return to more normal levels. 

Equity markets in emerging markets have deteriorated in recent months with many nations facing high inflation, resulting in their central banks raising interest rates. In China, economic growth has turned down more recently, as authorities continue actions to rein in inflationary pressures. The Chinese manufacturing index has declined over recent months following a number of administrative measures and several interest rate rises to cool the economy.

The S&P/ASX 200 price index increased by 1.6% during February. In recent months, the Australian market has generally underperformed developed overseas markets. The Australian market has been hampered by concerns about the impact of the slowdown in Chinese economic growth, while offshore markets have benefitted from improvements in the economic outlook in the US and Europe. The ‘two-speed’ Australian economy was evident through the recent reporting season whereby commodity stocks reported strong earnings growth while most industrial companies reported flat to negative earnings growth. The RBA has held interest rates steady since the increase to 4.75% in November 2010.  The Australian dollar appreciated over February against the US dollar to end the month at US$1.02, an increase of 2.1%.

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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