Australian Economy – Looser policy settings from the Federal Government and the Reserve Bank came as somewhat of an expected Christmas present. In an admission of defeat, Swan reluctantly scrapped plans to bring the budget into surplus this financial year. This, along with the RBA dropping rates back to "emergency" levels, could see some much needed stimulus pushed through the economy in 2013.
Global Economy – 2 hours after the year officially ended in Washington DC, the senate finally passed a bill to dodge the "fiscal cliff". During December, the Fed also came out and announced an official unemployment target of 6.5%, vowing to keep rates low until that goal is achieved. There was big news out of Japan, with Abe returning as PM and looking at pushing through QE at extraordinary levels. Data was a bit stronger across the board, though the European recession is expected to continue for a little while yet.
Investment Markets – Though most expected some sort of a deal from Washington, markets were still kept on edge throughout the month. The US was one of the worst performers though it still managed to finish in the black. Chinese markets saw a massive jump (18%) on the back of good data and promising comments from their new President. Japanese markets also had a good month (10%) mainly due to the fast falling Yen and hopes of stimulus.
Outlook – In the short-term, most eyes will be on corporate earnings reports flowing out of the US. Though Obama has looked to dismiss the need for a debt ceiling fight (as occurred in 2011 and set-up the "fiscal cliff"), the GOP is looking to regain pride and may cause some disruptions to markets and sentiment. News of a recovery out of Europe may be sometime off, but could be a driver for sustained market returns in the future.
S&P/ASX 200 – 12 months to 31 December 2012
Source: Core Equity Services