Australian Economy – The winding down of the commodities boom has so far been handled relatively well by the economy as a whole. Employment surprised with over 50,000 jobs added the previous month and trade and housing data was reasonably good. Other indicators still point to a slowing of overall growth (even with cuts to interest rates and the $A depreciation), but many commentators seem happy to wait until after the election before firming any medium term forecasts.
Global Economy – Economic data released throughout the month continues to send mixed signals about the general level of health in the global economy. Positives were seen in US housing and consumer sentiment, European trade and a slowing of GDP contraction and Chinese trade and domestic consumption data. However, weaker indicators were plentiful too with manufacturing output taking a hit across most markets and deflation still causing major worries.
Investment Markets – Volatility definitely picked up over May, led mainly by the large up and down seen in Japanese equities, and fears of less QE from the US Fed. May was particularly severe on Australian equities and the Australian dollar, as fears of a commodities bust gathered pace in light of weaker Chinese data. Europe and the US finished May near record highs and China was the best performer among equities with a 6.5% return for the month.
Outlook – The current retracement of equity prices is not overly surprising, with volatility likely to continue as long as central banks believe printing money is their best option. Though this should mean higher asset prices over the medium term, short term factors and price discrepancies are likely to persist and provide investors with a growing list of "unknowns".
S&P/ASX 200 – 12 months to 31 May 2013
Source: Core Equity Services