Bourse makes late recovery but waiting game continues
For the week, the benchmark S&P/ASX200 Index gained 10 points, or 0.2 per cent, to 5145, while the broader All Ordinaries rose 18.7 points, or 0.4 per cent, at 5144.
Bureau of Statistics figures released on Wednesday showed Australia's economy grew at an annual rate of 2.6 per cent in the year to June. Economists had been expecting growth of 2.4 per cent.
But the figures also showed the economy did not grow quickly enough to stop unemployment rising: the unemployment rate increased from 5.1 to 5.7 per cent.
The Reserve Bank kept the official cash rate at 2.5 per cent this week, a record low, retaining the option to cut interest rates further if economic conditions demand it.
On Friday, bond and currency traders were watching for any comments from leaders at the G20 summit, particularly comments about the civil war in Syria and the possibility of US missile strikes.
Last week, fears about an imminent US missile strike on Syria had upset global markets, but this week investors were relieved to hear that the prospect of an immediate escalation in the war had faded, with US President Barack Obama first seeking approval from the US Congress.
Attention was focused on 10-year US Treasury yields, which on Friday approached 3 per cent after closing at 2.99 per cent, the highest reading since July 2011.
And US economic conditions continued to improve, with the US services PMI index rising to 58.6, the highest reading since August 2005.
US non-farm payroll data also showed 176,000 positions were added compared to an estimated 175,000, while unemployment claims fell to 323,000 over the week, compared to an estimated 332,000.
In Australian politics, pundits were wondering if a decisive election victory for either major political party this Saturday would lead to a boost in business confidence.
But an important indicator of sharemarket sentiment showed there will be no such boost to investor confidence.
In March this year the Australian Securities Exchange upgraded its end-of-day volatility indicator - the S&P/ASX200 A-VIX - so that it could now track traders' expectations in real time. The index is a tool for investors, financial media and economists to monitor the level of near-term volatility in the Australian benchmark equity index.
It can be used to measure investor sentiment and is often referred to as the "fear index" because it rises and falls as investors consider the near-term health of global markets.
The A-VIX is currently at 15.628, close to mid-way between the year's high of 21.675 and the low of 10.540 (anything over 30 is getting into fear territory). The index has risen only slightly in the past two weeks, from about 13 to 15.628.
That means the bourse is likely to experience only a slight rise in volatility after the election and is unlikely to rally strongly in the next 30 days.
For the week, Newcrest Mining fell 46¢, or 3.5 per cent, at $12.80, after an internal review of the company's continuous disclosure practices failed to find a smoking gun that would point the finger at the miner over a recent share price spike controversy.
Leighton Holdings rose 90¢, or 5.2 per cent, at $18.30, after a subsidiary - Thiess - won a $1.8 billion contract to work on the Queensland Curtis liquefied natural gas project.
Frequently Asked Questions about this Article…
The Australian sharemarket gained ground after a late Friday rally. The S&P/ASX200 rose 10 points (0.2%) to 5145, while the broader All Ordinaries increased 18.7 points (0.4%) to 5144.
Australia's economy grew at an annual rate of 2.6% in the year to June, slightly above economists' 2.4% expectation, but unemployment rose from 5.1% to 5.7%. That mix — modest growth but higher unemployment — gives investors a cautious backdrop for corporate earnings and policy expectations.
The RBA left the official cash rate at a record low of 2.5%, keeping open the option to cut further if needed. For investors, a low cash rate generally supports asset prices and borrowing for business activity, but it also signals the central bank's concern about economic momentum.
The A-VIX is at 15.628, roughly mid-way between this year's high of 21.675 and low of 10.540. Because readings over 30 indicate 'fear' territory, the current level suggests only modest near-term volatility — the index rose from about 13 in the past two weeks to 15.628.
According to the article, market indicators don’t point to a big rally after the election. The upgraded A-VIX suggests only a slight rise in volatility and that the bourse is unlikely to rally strongly over the next 30 days, despite pundits debating whether a decisive win would boost business confidence.
Global risk factors, such as comments from the G20 about Syria and the chance of US missile strikes, had unsettled markets previously but the immediate escalation risk faded, which relieved investors. Meanwhile, US data — 10‑year Treasury yields approaching 3% (closed at 2.99%), a services PMI of 58.6, and non‑farm payrolls adding 176,000 jobs — point to improving US conditions that can affect global rates and sentiment.
Newcrest Mining fell 46 cents (3.5%) to $12.80 after an internal review of its continuous disclosure practices failed to find a 'smoking gun' related to a recent share price spike controversy. The review’s inconclusive result appeared to weigh on the stock.
Leighton Holdings jumped 90 cents (5.2%) to $18.30 after its subsidiary Thiess won a $1.8 billion contract to work on the Queensland Curtis liquefied natural gas (LNG) project, a positive earnings and revenue catalyst for the company.
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