Market Commentaryby Chris Limberg on Dec 15, 2013
The December quarter was volatile due to US tapering announcements but managed to finish the quarter higher with the S&P ASX 200 increasing to 5,352.21.
- The Australian economy continues to be heavily influenced by events out of the US and China. Most notably US discussion around the timing of reducing the amount of money the US Government is printing each month
- The Reserve Bank of Australia (RBA) kept the cash rate at 2.50%pa for the quarter, stating “the Board had judged that leaving the cash rate unchanged was appropriate while continuing to gauge the effects of the substantial degree of monetary policy stimulus that had already been put in place”
- Iron ore exports continue to grow in volume and the price has held up better than forecasted in recent months. Being Australia’s largest export this has significant implications on our economy
- During the election campaign Tony Abbot made a commitment to expand Australia’s infrastructure network benefitting the construction industry, creating jobs and helping to sustain expansion in the housing market
- The non-mining sectors of the Australian economy should continue to improve in 2014 on the back of raising house prices which historically has had a powerful effect on market confidence, activity and employment
- This process will benefit from a weakening Australian dollar improving our competitiveness
- The number of Initial Public Offerings (IPO) opportunities in 2014 is likely to increase with market confidence.
- In December the FED began to taper reducing the printing of money by 10 billion dollars to 75 billion dollars per month, investors on the whole reacted positively taking the reduction as a sign of continuing improvement in the US economy
- The FED also declared that rates would remain low until unemployment improves to around 6.5% subject to inflation remaining contained
- US markets responded by reaching a new all time high
- Negotiations within the US Government have reached an agreement on the US Government budget for the next two years
- However, sequestration continues to remain in effect. Sequestration cuts a predetermined amount of spending from the US budget leading to slower GDP growth (Gross Domestic Product which is the monetary value of all the finished goods and services produced within a country's borders)
- On the 1st of February 2014 Janet Yellen, with the resounding support from the Democrats, will take over from outgoing FED Chairman Ben Bernanke and will become the first woman to Chair the FED
- The structural hurdles of 2013 are expected to continue including high unemployment and Government debt levels
- European Union (EU) economic data continues to improvement but remains weak
- 2014 GDP forecasts for Europe are expected to achieve growth of 1.4% based primarily off continued German Growth (1.7%) and standouts predicted to be Sweden (2.8%) and Britain (2.2%) coupled with a return to growth for Italy and Spain
- Chinese growth remains on track for around 7% pa GDP growth over the quarter
- The November 3rd plenary session of the 18th Party Congress unveiled far-reaching economic reforms targeting structural issues threatening sustainable growth and stability in the Chinese economy. These reforms are targeted at rebalancing the growth of the Chinese economy such as reigning in house price growth, limiting credit fuelled growth and encouraging service industry growth
World markets are fragile and have picked up from where they were 3 months ago. Australia continues to look for leads from the US and China but remains constrained by a strong Australian Dollar. The US economy is showing signs of improvement but the recovery remains disorderly. Europe continues to turn around its growth prospects and looks set to expand modestly this year. Finally, China focuses on reform in an effort to achieve sustainable growth for their economy.
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