Calmer markets bode well for recovery

After weeks of turmoil, calmer conditions bode well for a better start to the new financial year.

Australian investors can rejoice. The S&P/ASX200 Index’s 3.3 per cent, 155.32 point surge over the last two trading days is a harbinger that more share price gains are likely to come.

The spectre of a financial meltdown in China has been quickly brushed aside (see: Crunching China's credit crunch). Any prognosis of doom with regard to the world’s second-largest economy has been quickly overtaken by the prospect of the US Federal Reserve not ending its stimulus too soon amid robust domestic economic data. Stocks and commodities, with the exception of gold, have rallied. Asian equity futures are up.

“Global sharemarkets certainly look a lot happier than was the case a week ago,” says Matt Sherwood, strategist at Perpetual. “Calmer markets are a much better place for investors to be."

The S&P/ASX200 Index fell 11 per cent, or 551.843 points, between May 14, when it was at a 52-week high of 5220.987, and June 24, when it fell to 4,669.144. The index yesterday closed at 4,811.281.

Still, every gold cloud has a dark lining. Gold has dropped to a 34-month low. At 0856 AEST the spot price of bullion was $US1201.86 an ounce, according to Bloomberg data. Gold futures for August delivery were down as low as $US11196.10, the lowest since August 2010.

Mining stocks may get a lift by a rise in the spot price for iron ore after four consecutive days of falls. The spot price for iron ore delivered through the north-east Chinese port city of Tianjin rose $US1.50, or 1.3 per cent, to $US115.30 a tonne yesterday. Last month and this month the Tianjin iron ore spot price has not fallen below $US110. The last time it did so was in October last year.

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