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Financial markets volatility started to subside this month. Investors were encouraged by promising stock market fundamentals and Chinese demand for resources, but are still worried by credit market uncertainty and a struggling US economy. The most influential move of the month was the Federal Reserve’s decision to cut US interest rates by 50bps, sparking a strong rally in global equity and commodity markets, and a sharp depreciation in the US$. Other central banks had been contemplating further policy tightening, now the direction of upcoming moves is far less certain. In Australia, the Reserve Bank maintained its cash rate target at 6.50%. However, the Bank still is concerned that the strong domestic economy will lead to ongoing CPI acceleration. The polarisation of the Australian and US interest rate policies has caused a sharp widening in the two countries’ bond differential in recent months. Australian 10-year Commonwealth Government bond yields finished at 6.16%, up 24bps, causing the Australian-US 10-year bond spread to increase to 158bps at end September. Equity markets have displayed resilience in the face of disappointing US economic data and ongoing market turbulence, opting instead to focus on the robust market valuations and solid global growth outlooks. Overall for September, the global developed share market index increased by 2.9%. The United States S&P 500 gained 3.6%, the European Stoxx finished 1.4% up, and Japan’s Nikkei index increased by 1.3%. However, the Australian and emerging markets indices once again notably outperformed, gaining 8.2% and 5.6% respectively. Apart from a brief falter mid-month amid fresh liquidity concerns, the Australian dollar soared and on the 1st October hit 89 US cents for the first time since 1989. Overall the A$ was boosted by basic fundamentals – a weak US$, strong commodity prices and heightening carry trade demand. The A$ was up 5.7% for the month. Amongst the major currencies, against the US dollar, the euro appreciated 4.7% and the yen appreciated from 115.8 to 114.8 (per US$). The soft US$ performance was the fundamental impetus behind positive commodity market performances in September. Oil and gold were particularly well supported (both up by 10%). Concerns over global energy supplies helped to push oil prices through the $US80 per barrel bound in September. US$ gold prices hit their highest level since 1980. The Economist base metal index finished September 4.3% higher. Overall, the CRB index of commodity prices finished the month 3.1% up. Please note that this economic commentary does not constitute advice. Source: Access Capital Advisers Pty.Ltd This article provides general information only and may not be relied on as legal or financial advice. |
