Australian Economy – Weakness in some areas of the economy still have many expecting the RBA to continue to loosen its monetary stance. This is evident in both the falling employment numbers and the flatlining inflation figures. The resources boom is also showing some signs of slowing with the trade deficit continuing to narrow. However, manufacturing seemed to rebound a little and all forms of credit (home loans, business lending, credit cards) showed signs of a more confident consumer and economy.
Global Economy – In this month’s episode of “If Only PIIGS Could Fly”, the main plotline focused on Germany trying to convince Greece to handover some budgetary controls, whilst Greek bondholders almost come to some sort of restructuring deal. It seems as though the ECB (read: Germany) has all but conceded that printing presses will have to be switched on and politically, the Merkel-Sarkozy bond is looking shaky as France gears up for elections. Across the Atlantic, US data continues to look promising with most now expecting a moderate-to-low growth election year. Elsewhere, Japan posted its first trade deficit since 1980, China’s trade surplus also shrank, and embargoes on Iran not seen as an immediate threat to oil prices or global peace.
Investment Markets – It was a good start to the year for most equity markets with the S&P/ASX 200 up just over 5%, the Dow pushing ahead by about 3.4% and Europe up over 4%. With hopes of a European solution and a good flow of positive data, share markets, though light on volume, signaled some inclination to adding on more risk.
Outlook – The US looks good for now so most of the focus will be on whether Europe will blast its way to a solution and whether China can maintain its growth levels. It seems that many investors are looking to the impending, large sovereign debt rollovers from the PIIGS to see whether Europe will fall over, but most are expecting the EU leaders to facilitate orderly bond auctions.
S&P/ASX 200 – 12 months to 31January 2012
Source: Core Equity Services