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Global financial markets were unsettled in June as events forced investors to question their appetite for risk. The outlook for the global economy still is good and quite supportive for financial markets, but temporary setbacks inevitably will become more common as the cycle stretches. Australia’s economy is growing solidly despite the drought, with March quarter national accounts showing year-to growth of 3.8% and quarterly growth of 1.6%. This finally brings GDP into line with the many other indicators that have been showing solid growth, such as employment and tax receipts. And further good rains fell during June (except in parts of Western Australia and Queensland), pointing to a considerable recovery in farm output and incomes in 2007-08. The combination of sustained global growth and stubborn inflation expectations prompted some central banks to raise official interest rates (eg RBNZ, BoE, Bank of Canada). In Australia, a speech by RBA Governor Stevens in June maintained the Bank’s recent dovish tone and left the impression of a board that is still deliberating on the medium term inflation outlook. Lower than expected inflation figures over the last two quarters have afforded the RBA some “additional time in which to assess trends”. Equity market growth took a breather this month as investors re-evaluated the expected impact of the US economic slowdown. Higher oil prices and ongoing weakness in bond markets further muted stock performance. Overall for June, the global developed share market index fell 1.1%. The United States S&P 500 dropped 1.8%, the European Stoxx and the Australian ASX 300 both finished unchanged, while Japan’s Nikkei index increased 1.5%. Share prices in emerging markets continued to perform well, up 4.4% for the month. Commodity markets were shocked this month when four Chinese stainless steel mills announced a plan to cut production by 20-30% each in July to prevent domestic prices weakening any further. As a result, Nickel prices plummeted by 30% in June and the Economist’s base metal index fell 4.0%. Overall, however, the majority of base metal stocks remain low and prices remain elevated, leading the Australian dollar to finish June trading at yet another 18 year high (US$0.8591). The A$ appreciated 2.8% against the US$, 2.1% against the Euro, 4.4% against the Yen and 1.1% against the Sterling. Please note that this economic commentary does not constitute advice. Source: Access Capital Advisers Pty.Ltd This article provides general information only and may not be relied on as legal or financial advice. |
