Market Wrap

After rising a strong 23% in the 2013 financial year, the Australian market has continued that momentum with a 5.3% return in July. Economic data around the globe is improving - or is least better than expected. Meanwhile the ongoing adjustment from the mining boom paints a decidedly patchier outlook for the Australian economy, once again acknowledged by the Reserve Bank of Australia (‘RBA’) in reducing the official cash rate by 0.25% at their August meeting. Further complicating the outlook is the newly announced Federal election date of 7th September. We consider this backdrop as we assess what this may mean for the August reporting season.

As highlighted below, the economy has begun the adjustment process away from mining and mining related activity towards the non mining sector of the economy; the main question being whet her the non-mining sectors can pick up the slack. 

Source: ABS, RBA, ABARES, Citi Research

Recent domestic economic data suggests that this may be a challenge, with soft retail sales data, inconsistent building approval figures, low business confidence and unemployment rising toward 6%. On the supportive side, inflation remains well within the RBA band of 2-3%, giving the RBA the confidence to cut further, whilst the Australian dollar has fallen. The ~15% drop against the US Dollar should assist the local economy but it still remains high in the opinion of the RBA. The prospect of an Election which may deliver a majority government, could be the catalyst to for either side may commence a confidence rebuild for both consumers and business.

Indices:

The Australian All Ordinaries Index has moved sideways since closing last Friday to 02:00 pm today. 

The rest of the world as measured by the MSCI index increased +0.9% in A$ from closing last Friday to end of trade Thursday.

Have a great weekend,

The team at IPS