Australian Cash

The Reserve Bank of Australia (RBA) surprised markets by keeping rates on hold at 3.75% in February, against the backdrop of unsettled global conditions. But this proved a temporary pause.

At its meeting in early March, the RBA raised the cash rate by 0.25% to 4.0%.  They noted that economic conditions in 2009 were stronger than expected, with a range of data suggesting growth in the Australian economy. The accompanying statement maintained the RBA’s bias towards tightening.  

Australian Fixed Interest

The UBSA Composite Bond All Maturities Index rose 0.5% in February. Yields on 10 Year government bonds rose to 5.49% (up from 5.38% in January). Sovereign risk indicators rose sharply as concerns escalated over Greece’s budget position and default risk. This dented risk appetite and caused some flight to higher quality markets.

Australia’s economy grew 0.9% in the fourth quarter, boosted by $22 billion in government spending on infrastructure.  Further, a rebound in consumer confidence, greater business optimism, surging house prices, a drop in unemployment, and signs of an investment boom in resources projects were forecast by the RBA to underpin sustained growth in Australia’s economy.

Gross operating profits jumped 2.2% in the fourth quarter from the previous quarter. Sales of newly built dwellings surged 9.5% in January, reinforcing RBA expectations for stronger growth in 2010.

Global Fixed Interest

The Barclays Capital Global Aggregate index rose 0.8% in February. Global bond yields were little changed during the month. Nonetheless, sovereign risk continued to dominate the headlines.  As Chart 1 shows, Europe sovereign debt remained a concern.

Governments in the EU responded to the situation in Greece by developing a possible $US34 billion rescue plan. As the month drew to a close, this led to some stability in fragile global market sentiment.

With global fixed income investors pre-occupied by European sovereign concerns, corporate bond issuance slowed significantly in February.

The US Federal Reserve unexpectedly increased the discount rate from 0.50% to 0.75%. The discount rate is the rate the Fed charges on emergency cash loans to banks. The Fed statement cited a continued improvement in financial market conditions but emphasised that this was a step toward normalisation of the Fed’s emergency lending facilities but did not signal any change in the outlook for the economy or monetary policy. Yields on 10 year Treasuries rose 3.61% in February (up from 3.59% in January).

Australian Listed Property

The S&P/ASX 300 A-REIT Index was up 1.4% in February, underperforming the broader share market by 0.6%. February was a busy month for A-REITs, with all reporting first half 2010 results.

The Diversified (4.8%) and Leaders (1.7%) were the best performers, while the Retail sector lagged (-0.8%).

The top performing trusts for the month were Charter Hall Group (11.2%)  Stockland Trust Group (8.8%) and Abacus Property Group (7.7%). Charter Hall announced the acquisition of the majority of Macquarie’s Real estate Management platform. Stockland reported a strong H1 2010 result, as did Abacus Property. 

The worst performing trusts were Ardent Leisure Group (-10.8%) and ING Industrial Trust (-5.6%). 

Global Listed Property

The UBS Global Property Investors Index increased 3.3% in February with the USA/Canada the top performing region (5.6%) followed by Australia (1.4%). The worst performing regions were Continental Europe (-0.8%) and the UK (0.5%).

The Federal Deposit Insurance Corp (FDIC) announced it is disposing of seized assets including real estate and property developments that previously belonged to failed banks. This move will put these assets back into private hands. More than 160 US lenders have collapsed since the start of 2009. This announcement was viewed as a sign of a more stable environment.

In addition, US housing prices fell 1.2% in the fourth quarter 2009 from a year earlier – the smallest loss in two years – as a federal tax credit for homebuyers boosted demand and helped to stabilise the housing market. Sales of existing homes jumped 14% in the fourth quarter from the previous quarter, and the inventory of homes on the market dropped to its lowest level in over three years.

Australian Shares

The S&P/ASX 300 Accumulation Index rose 2.0% in February. Company reporting season was the main diver of stock performance. Returns at the stock level varied very widely within most sectors.

A handful of large names (ANZ, CSL, Wesfarmers, Westpac, Woolworths) were rewarded for results that positively surprised the market. Mining stocks (especially BHP and RIO) also contributed, reversing some recent underperformance, due to rising commodity prices. Other names rewarded following results announcements were Ansell, ASX, IAG, Macquarie Airports, News Corp, Onesteel, Ramsay, Resmed, Stockland, United and Virgin.

The other big story domestically was the positive trading updates issued by ANZ< NAB and Westpac.  Good first half results from Commonwealth Bank and Westpac confirmed positive conditions for bank earnings.

However some companies (including Alumina, Billabong, BlueScope, Downer, Fairfax, Primary Health, Qantas, QBE, Santos, Telstra, Toll and Westfield) suffered, following results or outlook guidance that fell short of bullish broker expectations.  

International Shares

February saw uncertain trading in global equity markets due to mixed signals on the US economy and an escalation of the Greek debt crisis. The MSCI World ex Australia index (hedged, $A) rose 2.2% mainly due to $A gains.  

US shares finished higher due to positive housing and manufacturing data, plus some strong quarterly company results from Exxon, Home Depot and UPS. Market confidence in a continuing low Fed Funds rate was bolstered by a benign inflation result, notwithstanding the first increase in the bank discount rate. However negative employment and confidence data caused some concern, as did the worsening situation in Greece, although confidence that the Euro zone would structure a workable stabilisation plan limited the negative fallout.

Mining stocks outperformed as commodity prices rose, despite a further tightening of bank lending in China. Defensives (Health, Telecommunications, Utilities) lagged.  
European equities were under pressure (France -0.8%, Germany -0.2 %,) weighed down by the fiscal problems in Greece and Spain, and moderate economic data. The UK (3.2%) did much better due to its exposure to mining stocks and a good result from Barclays, which lifted the banking sector.

Global Emerging Markets

Emerging markets were down 0.4% in February (MSCI EM index ($A). Investors were concerned that China’s economy may lose momentum, undermining the global recovery, as the government reined in earlier stimulus measures to counter inflation and asset-bubble risks.

Partial data suggests that China’s manufacturing grew at a slower pace in February. The Purchasing Manager’s Index (PMI) slid to a one year low of 52. This figure compares with a record low 38.8 in November 2008, when recessions in the US, Europe and Japan sent export orders plunging.

investment markets data

table 1 –investment market performance to 28 February 2010

table 2 – breakdown of Australian & global fixed interest market performance to 28 February 2010

table 3 – performance of major Australia share market indices to 28 February 2010

table 4 – breakdown of Australian share market performance to 28 February 2010*

*Based on S&P/ASX 300 Accum Indices (reclassified in accordance with the Global Industry Classification Standard “GICS”).

top 5 performing Australian shares in February 2010*

bottom 5 performing Australian shares in February 2010*

*Based on the universe S&P/ASX 100 Index.

table 5 – breakdown of international share market performance by country to 28 February 2010

Note: all returns are calculated in local currencies

table 6 – breakdown of international shares market performance by sector to 28 February 2010*

*Based on MSCI world Indices (reclassified in accordance with the Global Industry Classification Standard “GICS”).
 
Note: all returns are calculated in local currencies

economic indicators

This entry was posted on Thursday, March 18th, 2010 at 1:43 pm and is filed under Economic Updates . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.