Market Commentary

by Chris Limberg on Jun 15, 2013

The June quarter has delivered increasing sharemarket volatility with the S&P ASX 200 closing at 4,803.

Australia

  • The prevailing question in the Australian sharemarket continues to be whether the non-mining sector can offset the slow down occurring in the mining sector.
    • Several mining and mining services companies downgraded their earnings expectations, with analysts downgrading all such companies
    • The mining sector has been dominated by restructuring, cost cutting and the deferring of capital expenditure plans
  • The volatility has continued into the new financial year. The increase in volatility is largely due to global news and events out of the USA and China.
  • The Reserve Bank of Australia (RBA) cut rates in May by 25 basis points (0.25%) to 2.75%, stating “It judged that a further reduction in the cash rate was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target.” The main points from the monthly minutes are:
    • The effects of previous rate cuts are very slowly working their way through the Australian economy
    • Inflation is contained within target levels
    • Growth is slightly below long term trend
    • The RBA believes the AUD exchange rate to be high not withstanding its recent decrease in value
    • Business confidence remains subdued despite showing signs of improving in certain industries including construction and business services
  • Prime Minister Kevin Rudd displaced Ex-Prime Minister Julia Gillard as Leader of the Australia Labour Party. Recent polls suggest the pending election will be closer than previously speculated by the Australia media causing businesses uncertainty and the delaying of future plans.
  • The June quarter observations with respect to the Australian economy are:
    • House prices appear to be on the move recording their strongest monthly rise since March 2010
    • Consumer spending remains sluggish

US

  • Recent Economic data releases show modest improvement in economic conditions.
  • The improving economic conditions have lead to increased volatility in the Australian market with the Federal Reserve System (FED) Chairman Bernanke indicating that should the current improvement continue the quantitative easing or money printing program will be scaled back. Investors then attempted to second guess the timing of the diminishing process which has led to increased sharemarket volatility.
  • Market commentary has moved on from the issues of the federal debt ceiling or fiscal cliff which was previously delayed till May 19, where upon the debt ceiling rose and Sequestration continues to cut a predetermined amount of spending from the US budget and slows GDP growth (Gross Domestic Product which is the monetary value of all the finished goods and services produced within a country's borders).

Europe

  • Europe continues to struggle both politically and economically.
  • The structural hurdles in 2013 continue including record high unemployment and austerity of government budgets.
  • European uncertainty continues with a key upcoming risk of scheduled German elections in September.
  • The European Central Bank has confirmed their “Securities Market Programme” is continuing. The European equivalent to US money printing devised to assist Euro-zone nations with high debt levels.
  • Greece has received more funding in order to support its economy.

China

  • Chinese GDP growth has slowed to about 7.5% in line with market expectations. The new Chinese leadership appear to be comfortable with this growth rate.
  • The recent Purchasing Managers Index (PMI) which is a leading indicator for GDP has slowed to a level indicating the growth rate of GDP should stabilise at the lower growth levels.

Should you have any queries or want to discuss the above or your portfolios please do not hesitate to contact us.