by Jodie | Aug 29, 2011 | Economy, Finances, General, Interest Rates, Investments, US Economy
It looks like a bit more ‘calm’ returned to the Australian market this week, with local factors returning to centre stage again.
Can you take us through the key drivers over the past week?
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After the huge moves of the first half of August, the S&P/ASX 200 has spent the past two weeks trading in a 5% range centred around the 4200 level – which is where it continued to trade on Friday morning.
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Compared to the past few weeks, this week was a lot calmer in global markets. With overseas headlines taking a backseat for a few days, and with a relatively quiet week in terms of economic data releases, Australian investors were able to focus again on the local company reporting season before the RBA Governor’s appearance in front of the House economics committee and the Jackson Hole central bankers’ meeting in the US on Friday.
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In terms of local company earnings, current EPS growth for the market is running at around 16-17% for 2011, which is expected to come back to 14% next year. A key feature of the current reporting season is the higher than expected dividends, despite some generally disappointing earnings results. The fact that companies are deciding to return cash back to shareholders reflects a more subdued outlook for the Australian economy of late, and hence a reduction in the
level of attractive investment opportunities at present. Earnings guidance for the year ahead has also been largely mixed, reflecting the two-speed nature of the economy at present (mining vs non-mining).
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The most notable earnings results this week were BHP Billiton (bumper $22bn net profit), and Woolworths ($2bn). Woolworths warned that profit growth from their retail operations could be as low as 2% over the coming year – in keeping with the lacklustre retail sales data coming through at present. BHP, on the other hand, said it would invest a record USD20bn in growth projects in iron ore, coking coal and shale gas.
The week ended with Central bankers back in the spotlight. RBA Governor Glenn Stevens gave a speech on Friday, was there anything surprising in his comments?
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Reserve Bank governor Glenn Stevens’ testimony to the parliamentary economics committee on Friday morning included the comment that inflation data is ‘still concerning’, which added a short term boost to the A$ as speculation about near term rate cuts was dampened somewhat. The general view is that the RBA has
abandoned its tightening bias for now on concerns about the global economic
outlook and the impact of this for Australian growth, but may be less likely to
adopt an easing bias while core inflation remains near the top of the RBA’s
2-3% target band.
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The market is still quite nervous about developments overseas, and is looking to the Jackson Hole central bankers conference for any announcements out of the Fed’s Bernanke about the US growth outlook and any prospects for QE3.
by Jodie | Aug 8, 2011 | Debt Management, Economy, Finances, General, Investments, US Economy
So, this feeling is a little familiar… Markets around the world are crumbling, government debt is peaking and we certainly don’t want our superannuation and investments crumbling in what may have been only Round 1 of the GFC. So, what to do this time? Hold onto your hats! Where will the ride take us this time?
I’m fielding quite a few questions – sit tight? sell up? go partly conservative? what’s best for me?
Please find attached the latest quick read snapshot that deals with just those questions. Click here for more: August Snapshot
by Jodie | Aug 5, 2011 | Economy, Finances, General, Interest Rates, Investments, US Economy
Wondering what’s going on the World right now? Markets are tanking, savings are surging and we’re all too frightened to spend! Is there any silver lining??
Below is BT Chief Economist Chris Caton’s reaction to the current market volatility:
Markets are selling off around the world because of global growth fears.
In recent days, the US has had a disappointing Q2 GDP report, a disappointing manufacturing purchasing managers’ survey (the ISM) and news that real consumer spending fell for three months in a row through to June. Together, these suggest that the loss of momentum of the US economy has been worse than thought earlier.
Oddly, there was no poor economic news on Thursday, but markets are also spooked by rising debt concerns in Italy and Spain, and actions by the ECB and the Bank of Japan that convinced investors that things must be worse than they thought.
I see these fears as overdone; much of the slowdown in the US seems to be due to higher oil prices (which have since come off) and disruptions to manufacturing because of the supply-chain effects of the tsunami. That economy is not about to burst from the blocks, but it should resume moderate growth.
There is a key data release this evening: the July employment report. This is the most important single piece of economic news, and if it’s bad look out. On the other hand, I actually see more chance of a positive surprise, so it could be a good night.
The fall in the Australian market today, and in the currency, has nothing to do with the state of the Australian economy and everything to do with these overseas concerns. It will, however, further damage consumer sentiment. The good news: a further interest rate increase is now off the agenda.
![Nervousness & Uncertainty Shake Markets, Again!]()
by Jodie | Aug 5, 2011 | Economy, Finances, General, Interest Rates, Investments, US Economy
Like you we are watching nervousness and uncertainty play out on world markets, reminding us all that Australia is part of the global economy. We have spoken to Russell Investments, who continue to monitor the situation and they have provided us with the following information.
Market Action
- A gloomy global economic outlook sent investors on a mass exodus out of risky markets Thursday and into the refuge of US government debt, sending yields to yet another round of new 2011 lows. The intense flight into safe-haven Treasurys forced benchmark 10-year yields down more than 50 basis points since last Friday; there hasn’t been such a large one-week drop in yields since November and December of 2008, when Lehman Brothers collapsed, sparking a financial-market frenzy. This morning, the 10-year US Treasury note yields 2.40%.
- Investors across the globe have been buffeted by economic and political turmoil in recent days. In the US, fears have turned from worries about a possible default by the US government to a weakening economic outlook. A string of recent weaker than expected economic data have pointed to a possible slowing of the recovery.
- In Europe, leaders are still working through a longer term solution to the sovereign debt crisis impacting peripheral countries such as Greece, Portugal and Spain. Investors are increasingly nervous that troubles are spreading to Italy and Spain, driving down stocks across the region and sending borrowing costs of peripheral nations soaring.
- European stock markets plunged 3.4%, the largest one-day drop in more than a year, while US major indices continued the falls, ending down around 4.5%.
- The breaking of short term technical levels, automated trading systems and the imposition of automated sell trade curbs in the US, fed the worries of traders.
Keeping market moves in perspective
- Despite last night’s extreme movements, there was nothing in terms of a fundamental change in the world economy that happened in the past 24 hours. The fact is we remain in a volatile market environment, set against the backdrop of a grinding global recovery.
- It is helpful to put last nights’ moves against the backdrop of the following key fundamentals:
- The recent softer US data is consistent with our long held view that economic data overseas will oscillate between good and bad for a while yet, but that the net effect is the continuation of a grinding recovery over the next year or more.
- Despite Eurozone debt concerns, core countries such as Germany continue to deliver strong growth, and one of the best performing sharemarkets in the world over the past year – despite everything going on with Greece.
- Equity valuations remain ok (on the cheap side of longer term averages). US earnings in particular remain robust with 75-80% of reporting companies in the current earnings season beating expectations – 43% of these by more than 5% (though we do expect US earnings growth to slow to a more sustainable pace going forward).
- US government bond valuations are now considered to be at extremely expensive levels. The debt ceiling/deficit cutting issues will be worked through and US default is an extremely low probability going forward.
- The central scenario for Europe is that sovereign debt worries will continue to muddle through for now, but with any agreement on a long term solution still a way off yet.
- Emerging economies remain the key drivers of global growth. Central scenario is for a soft rather than hard landing in China (slowing to 8% pa or so – still impressive)
Key Message
- Whenever there are large market-driven movements like last night, it is likely there will be continued volatility until things settle down again.
- The key for investors is not to panic. We remain confident that while market conditions will continue to be volatile over the rest of the year, now is not the time to make knee-jerk reactions and run to cash (as many did in the depths of the GFC – with terrible results in the ensuing recovery).
- Keep your head, stick to your long term strategic plan, and look through the current noise to keep headlines in perspective (especially against the backdrop of market valuations and economic fundamentals). There is nothing in the past week or so that should change your medium to long term investment strategy.
Volatility of this nature has us all concerned and we will remain in regular contact with Russell over the days and weeks ahead. We will take all necessary steps to keep you appraised of any new developments and ask that you contact your adviser with any specific concerns.
It looks like a bit more ‘calm’ returned to the Australian market this week, with local factors returning to centre stage again.