Australian Economy – A bit of a quiet month with no real domestic dramas to report. The low inflation figure was not enough to convince the RBA of another rate cut, and most other data was as expected. Australia is still a 2-speed economy, with a struggling manufacturing sector, recovering retail and housing sector and a robust mining sector.
Global Economy – With Spain on the verge of bond market annihilation, ECB President Mario Draghi stepped up and promised the central bank will do whatever it takes to protect the Euro (i.e. make sure no-one leaves). This gave a good end to an otherwise volatile month. In the US, the recent slowdown in their recovery continued with a mix of different results painting a somewhat indecisive picture. News out of China points to an accelerated push for stimulus with new infrastructure projects being announced and interest rates being cut.
Investment Markets – The Australian stock market was among the best performing in July with a return of just over 4%. The big surprise was the 5% drop in Chinese equities and 3.5% drop in Japan. Most of the rest of the major world markets saw 1-3% gains, primarily seen following Draghi's reassuring comments.
Outlook – With Spanish bond 10yr bond yields still up around 7% and Italian yields hovering around the 6% level, there is still a big question mark about how this will all play out. Volatility is likely to remain high under these types of conditions as even a minor hiccup could cause markets into a short-term panic. But with a bit more confidence in European leaders and moves toward a tighter Euro regime, the medium term outlook may have a few more bluer skies.
S&P/ASX 200 – 12 months to 31 July 2012
Source: Core Equity Services