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In stark contrast to the improvements in financial conditions during October, conditions worsened in November. However, while some parts of financial markets appear to be pricing in recession, the outlook for the global economy is much less grim. Even in the US, where the impact has been most pronounced, a period of subdued growth is more likely than a recession as long as the problems in the housing sector do not force consumers to cut back spending a lot. Meanwhile, the strong momentum in emerging markets is expected to persist. The Anglo-sphere economies have been hit hardest by the fallout from the sub-prime problems. The Fed has signalled a willingness to cut rates further, as required. The BoC and BoE cut rates in early December. The RBA raised the cash rate, by 25bps, to 6.75% on 7th November, retaining a tightening bias due to strong domestic demand pressures. By early December, they had signalled a more relaxed stance, due to the deteriorating outlook for (parts of) the global economy. November saw falls in equity markets as concern over the credit crunch continued, with increasingly risk averse investors moving into less risky securities. Asian markets faired particularly poorly, with Japan, Hong Kong, and China (-16.0%) all recording falls of more than 6%. Higher than expected domestic unemployment figures and risk aversion in world markets played against the $A as did the unwinding of carry trades throughout the month. The A$ fell 5.1% against the US$, its biggest monthly fall since April 2004, to finish at 88 US cents. Mixed signals from central banks on interest rates led to a volatile month amongst the other major currencies. The US$ declined against the yen and the euro, down 3.7% and 1.1% respectively, but gained ground on the sterling, up 1.2%. Commodity markets took something of a hit in November. Oil reached record peaks just under the $100 a barrel mark before falling under speculation of OPEC boosting supply and reduced Middle East tensions. Oil prices finished November at US$91 per barrel, down 3.7% for the month. The major metals indexes also fell sharply, led by falling lead prices (-26%) whilst copper (-10.4%) and nickel (-14.4%) also had substantial price falls amidst rises in inventories and risk aversion. The Economist Base Metal Index finished November 9.1% lower. Overall, the CRB index of commodity prices finished the month 2.8% down. Source: Access Capital Advisers Pty.Ltd This article provides general information only and may not be relied on as legal or financial advice. |
