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April was characterised by a continuation of recent trends – mixed economic news out of the United States; solid to strong growth elsewhere; inflation edging lower; a further lift in the A$ on the back of higher metal prices; relatively stable interest rates; and buoyant equity markets. All in all, the economic environment globally remains positive for investors. Perhaps the most important economic news over the past few months has been the generally favourable trends in inflation. While monetary authorities around the world continue to watch for signs of genuine inflationary pressure, they have taken comfort from confirmation that the oil price-induced jump in headline inflation last year did not get built into ongoing inflationary pressures. Consequently, financial markets are expecting official interest rates to remain relatively low and stable, and this has fed through into similarly low bond yields. Despite strong domestic demand and a tight labour market, our own Reserve Bank has kept rates on hold over recent months because of the better news on inflation. The increase of just 0.1% in underlying CPI inflation in the March quarter has resulted in the RBA lowering its forecast for underlying inflation for 2007. At the same time, the global economy continues to grow strong. The latest IMF forecasts that were released in April have the global economy growing at an average of 5% in each of 2007 and 2008, which would then be the fifth year in a row of growth at that pace. Importantly, the growth is very widespread with all groupings of emerging markets and developing economies achieving growth of between 5% and 10%. The advanced economies are forecast to expand by around 3% a year. The main important economy where the economic news is mixed has been the United States where a weak housing sector is expected to affect output for the remainder of the year. Relatively low and stable interest rates and strong earnings growth continue to push share markets along. Overall for April, the global developed share market index returned 3.3%. The United States S&P 500 gained 4.3%, the European Stoxx was up 4.2%, the Australian ASX 300 increased 3.0%, while Japan’s Nikkei index was more subdued, increasing just 0.7%. Share prices in emerging markets continued to perform well, up 3.2% for the month. With inventories for most base metals at historic lows and a high speculative component, commodity prices remained elevated and have become extremely sensitive to market news, in particular geopolitical developments and supply disruptions. The major base metal indices increased over the month - the Economist base metal index (+12.2%), the MG Index (+7.8%) and the LME index (+8.9%). On the other hand, the price of oil (-0.3%) remained in its range of the past months – demand was generally steady and there were few major downside events to damage geopolitical relationships. The stronger commodity prices helped to push the A$ higher. It finished firmer against all major currencies in April, appreciating 0.5% against the Euro, 3.8% against the Yen and 1.0% against the Sterling. Overall, the Australian Trade-Weighted index was up 1.7% for the month. The key drivers of the currency’s strength is the relatively weak US$, M&A related net inflows and continued gains in commodity prices. Source: Access Capital Advisers Pty.Ltd This article provides general information only and may not be relied on as legal or financial advice. |
