Australian Economy – December saw the second straight month of interest rate cuts by the RBA in an attempt to aid the struggling retail, manufacturing and service sectors. With the risk of a long European recession negatively affecting China and Australia, there seems now to be room to free up the money supply. Corporate balance sheets and income statements are still looking healthy, but there is growing weakness in employment and the trade surplus, which could see economic growth start to taper off.
Global Economy – A tale of 2 super powers as Europe continues to struggle whilst the US sees a string of positive data. European leaders agreed to back a new debt rollover facility to allow banks to recapitalise, which saw almost EUR 500 billion borrowed by the banks on the first day. Conversely, EU member state balance sheets are still in disrepair, despite welcome lower yields on Spanish and Italian bonds. So the US is looking like it may escape another recession, while Europe and the UK look destined for a prolonged contraction.
Investment Markets – Despite some hope of a “Santa rally”, which was looking good in the first week of December, the S&P/ASX 200 finished down for the month and well down for the calendar year. US markets managed to eke out gains late in the month, with Europe finishing flat. The volatility in the marketplace seems to be around for a lot longer yet, with the bad-news-good-news cycle creating an air of perpetual uncertainty.
Outlook – The hopes of the world’s investors seem to be squarely focused on whether Europe can come to some sort of agreement on a fiscal union. The risk of more pain is high with this factored in to prices to some extent. However, should the matter be sorted out in a timely fashion (not likely, but we can all hope, right?), world markets would be expected to indulge in some much awaited running, bull style.
S&P/ASX 200 – 12 months to 31 December 2011
Source: Core Equity Services