24 May 2013
• We’ve had a small correction in the Aussie share market this week with the market down more than 2% - the Financials sector alone is down more than 4%.
• The market was down 2% on Thursday alone as poor data locally and globally, as well as some speeches from key foreign officials, scaring off most investors across the globe in conjunction with investors taking some profits on strongly rising markets over the last month or so.
• The market was spooked earlier in the week as Target (a subsidiary of Wesfarmers) reported disappointing results as did a number of mining services companies. This resulted in a large drop in share prices across retail and mining services sectors.
• In contrast, some positive news from Leighton, Suncorp, and Santos kept the market trading sideways earlier in the week, after the ASX200 hit a five year high.
• In global markets, share markets across the globe (Europe, Japan, US) had been creating new all-time highs prior to Thursday’s fall. Japan alone fell more than 7% in one day.
• The key market news of the week has been the drastic fall in the AUD against the USD. It’s key to note that the movement is mainly the result of the USD rising as opposed to the AUD falling (i.e. people selling the AUD).
• The AUD is currently hovering around the 96c mark against the USD after falling below 96c for the first time in nearly a year. The AUD was 10c higher a little over a month ago.
• The market was initially spooked by members of the US Federal Reserve discussing a reduction in the stimulus being provided to the US economy. This was exacerbated by the Federal Reserve Chairman’s comments that the central bank could pull back the stimulus sooner than planned.
• The US also had poor manufacturing and housing data released earlier in the week.
• This was in contrast to strongly rising consumer confidence figures in the US.
• There may be some further pressure on the AUD if the market suspects another RBA rate cut sooner rather than later in the year. Though, with the currency falling, the RBA may not need to cut rates again til very late in the year.
• The Federal Government’s chief commodities forecaster has warned that the resources construction boom has peaked and is likely to fall sharply through the next 5 years. This spells trouble for the rest of the Australian economy unless the falling AUD continues and productivity increases.
• Poor economic data out of China also spooked the market and definitely didn’t assist the Aussie market.
• A large drop in an important consumer sentiment survey in Australia (back to levels not seen since August 2012) even in light of the cut to the RBA cash rate, could apply further pressure on the RBA to cut rates further.
• After the big budget news of last week, it was a quiet week on the political front.
• Tony Abbott’s budget reply speech was received well by the market and media outlets. He reiterated his promises to scrap the carbon and mining taxes, and announced a delay by 2 years in the ramp up in compulsory superannuation from 9-12%.
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