Market Commentary

by Chris Limberg on Mar 15, 2014

Market volatility persisted into the March quarter and the Australian sharemarket closed slightly higher with the S&P ASX 200 increasing to 5,394.83. However, price movement of companies in the market continues to be very volatile.

Australia

  • The Reserve Bank of Australia (RBA) kept the cash rate at 2.50% pa for the quarter, stating “if the economy was to evolve broadly as expected, then the most prudent course was likely to be a period of stability in interest rates”
    • Economist are now predicting a rate raise either late this year or early next year
  • Australian exports grew strongly in recent months with Iron ore exports growing strongly in volume however, price declines have largely offset volume gains
  • In January the unemployment rate hit a high of 6% but has since faded back to 5.8% in March although a large portion of the change in employment numbers has come from part-time jobs and falling participation rates (participation rate is the number of unemployed people actively seeking work)
  • The strong uplift in house prices has eased from the fast paced recorded throughout 2013
  • The non-mining sectors of the Australian economy have remained subdued in the March quarter but are expected to gradually improve over time
    • The Australian dollar is proving problematic. In March the dollar reached 5 month highs against the US dollar and remains stubbornly elevated from its long term average around 80 US cents. A lower Australian dollar may assist local businesses profitability and growth.

US

  • The new FED Chair Janet Yellen in testimony to the US Congress indicated that a significant change to the outlook of the US economy would be required to change the FED’s intention to scale back its rate stimulus measures. At the current rate of scaling back it is unlikely that US interest rates will increase before late 2015
  • The US S&P 500 and Dow Jones Industrials reached new all time highs during the March quarter
  • Recent data on the US economy indicated the growth rate may have slowed although some of this slow down may be accounted for from particularly adverse Winter weather in January

Europe

  • The structural hurdles of 2013 are expected to continue including high unemployment and Government debt levels
  • European Union (EU) economic data continues to show the recovery is intact recording modest growth in 2013
  • 2014 GDP forecasts for Europe are currently to achieve growth of 1.4% based primarily off continued German Growth (1.7%) and standouts predicted to be Sweden (2.8%) and United Kingdom (2.2%) coupled with a return to growth for Italy and Spain
  • World sharemarkets panicked during the quarter as the dispute broke out over Crimea with Russia flexing its military muscle. The situation appears to have faded into the background for the present but is likely to grab more headlines before resolution

China

  • Chinese economic data at this time of year is difficult to interpret due to the Chinese New Year holiday. The available data suggests the Chinese economy may have slowed in the March quarter
  • The implications of the November 3rd plenary session of the 18th Party Congress continue to impact the Chinese economy namely in the areas of rebalancing the growth of the Chinese economy such as reigning in house prices, limiting credit fuelled expansion and encouraging service industry growth
  • Current trends in the Chinese economy are
    • The peaking working age of the Chinese population
    • Urbanisation is expected to continue
    • As the population continues to urbanise the next phase is anticipated to be increases in size and quality of housing, that if true would likely indicate continuing high levels of construction and therefore demand for raw materials

World sharemarkets in general have continued to strengthen and maintain the modest pace of recovery. Australia focuses on rebalancing its economy away from the mining sector. The US continues to strengthen and decrease stimulus measures. 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 rebalance their economy and achieve sustainable growth.

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