Market Commentary

by Chris Limberg on Sep 15, 2013

The September quarter was industrious despite many Global challenges with the S&P ASX 200 increasing to 5,218.90.

Australia

  • The Australian economy continues to be heavily influenced by events out of the US and China.
  • The Reserve Bank of Australia (RBA) cut rates in August by 25 basis points (0.25%) to 2.50%, stating “a lower level of the cash rate would better contribute to achieving sustainable growth in demand consistent with the inflation target.” The main points from the monthly minutes are:
    • The effects of previous rate cuts are still working their way through the Australian economy. This is evident through the recent uplift in the housing market which has recorded weekly clearance rates of over 80% in some parts of the country
    • Inflation is contained within target levels
    • Growth remains below long term trend
    • The RBA remains concerned about the high AUD exchange rate creating a drag on growth in the Australian economy
    • Unemployment continues to drift higher
    • Business confidence remains subdued despite improving balance sheets
  • The Election was won decisively by Liberal Prime Minister Tony Abbot. The result should boost market confidence for both business and consumers
  • It is encouraging to see the changes in economic policy in Japan in recent months as they remain one of Australia’s largest trading partners

US

  • It has been an eventful period in the US over the last few months with the main factors being:
    • A period of high tension between the US and Syria to the point of beginning another war. At this stage the tension seems to have cooled and markets have shifted focus on to the next event
    • FED tapering was widely predicted to begin in September by World markets. However, the taper did not eventuate as members of the board would like to see more evidence of economic recovery in the US economy
    • The current issue occupying the markets focus is the current US government shutdown in a game of brinkmanship for the impending US debt ceiling crisis. With the Republicans opposing increases in spending and the Democrats proposing to establish a universal healthcare program
  • 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)
  • Recent Economic data releases show a continuing modest improvement in US economic conditions

Europe

  • The structural hurdles in 2013 continue including record high unemployment and austerity of government budgets
  • Chancellor Angela Merkel and her Christian Democratic Union Party have won a decisive victory in recent German elections winning over 40% of the vote
  • European Union (EU) economic data is beginning to show early signs of improvement but remains very weak and Greece, Spain and Portugal debt issues persist
  • Growing EU optimism is evident from Ireland’s ambitions to exit its 3 year bailout in December this year without taking a precautionary line of credit from the European Central Bank as Ireland has accumulated €25 billion cash buffer

China

  • Chinese GDP growth has reportedly slowed to about 7% pa. The new Chinese leadership appear to be comfortable with this growth rate
  • A key risk in the coming quarter for markets may revolve around the November third plenary session of the 18th Party Congress. This meeting is anticipated to unveil far-reaching economic reforms targeting structural issues threatening sustainable growth and stability in the Chinese economy

Whilst individual elements of World markets maintain worries each is beginning to show hints of renewed growth. In terms of the Australian market the raising house prices, higher household saving rate and a falling Australian dollar should support domestic growth.

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