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The chance of a recession in the US increased over December, with a number of economic releases disappointing expectations. This news led to Wall Street recording its worst start to a year for a number of years. Global markets were also affected by this news, although China rebounded from its poor November performance to record solid gains in stocks. A strong Chinese economy is likely to place the Australian economy in good stead as we head into the New Year. Write-offs and losses from the sub-prime fallout continued to rear their heads over December, with some companies struggling to refinance their debt in the face of stricter borrowing conditions. Higher borrowing rates were part of the reason behind the RBA deciding not to raise interest rates for a second month in a row, although markets are expecting a rate rise early in 2008. The Fed and BoE did cut rates, by 25bps each, and markets moved to price in further interest rate relief in the first half of 2008. After sustained falls throughout November, December saw a more stable month in equity markets. Concerns over losses from the sub-prime fallout plagued markets as it has for most of the second half of 2007. Falling business sentiment in Japan, poor performances by banks in the UK, and lower expectations of interest rate falls in Asia all hampered stock performances in these countries. In early January, weak economic data from the US led to falls in stocks globally. Overall for December, the global developed share market index decreased by 0.7%. The United States S&P 500 lost 0.9%, the European Stoxx finished unchanged, and Japan’s Nikkei index decreased by 2.4%. Australian equities rose by 2.2% in the first two weeks of trading, before finishing the month down 3.0% overall, while emerging markets finished up 0.6% (and 1.5% ex-Asia). A return to carry trading helped the $A in the early stages of the month as investor’s risk appetites increased. However, the end of the month saw many of these trades being unwound. The A$ fell 1.0% against the US$, to finish at 87.5 US cents. The US$ appreciated against all major currencies, up 0.5% against the yen, 0.4% on the euro, and 3.4% on the sterling. Commodity markets slowed their downward trend which saw large price falls in November, with prices remaining stable for many commodities through most of December. The West Texas Intermediate Oil price rose 8.2% with the spot price reaching just under the US$100 a barrel mark after news of low inventories. The major metals indexes fell but not by as much as they had in November, with Aluminium and Copper down 4.4% and 3.5% respectively. Gold was the strong performer and some analysts are tipping it to hit the US$1,000 mark in 2008. The Economist Base Metal Index finished December 2.7% lower. Overall, the CRB index of commodity prices finished unchanged for the month. Source: Access Capital Advisers Pty.Ltd This article provides general information only and may not be relied on as legal or financial advice. |
