It was only four weeks ago that our sharemarket - and our superannuation balances - were seemingly lurching off a cliff, as fear and panic gripped stockmarkets worldwide.
The benchmark ASX 200 index lost 15 per cent of its value in the space of a week, before staging a bumpy recovery. In the end, the ASX 200 lost a mere 3.2 per cent in August.
We have fared a lot better than most. The US S&P 500 fell 5.7 per cent, while the Europeans were all hit hard, most notably France (down 11.3 per cent), Italy (15.6 per cent) and Germany (19.2 per cent).
And while global panic has subsided for now, the market here remains tetchy, cognisant that news ranging anywhere from bad to disastrous, from the US and especially out of Europe, is always lurking around the corner.
Even after a relatively disaster-free reporting season, there has been a rebasing of expectations from analysts, most who believe the earnings outlook for many industrial companies need to be revised significantly downwards - unless, of course, they are exposed to the resources sector.
The subsiding chaos has not necessarily revealed a pretty picture here either - the have and have-nots of the two-speed economy are becoming more divergent, and the domino effect of this chronic lack of consumer confidence among Australians is beginning to show.
Despite an undersupply in housing, two major building material companies - CSR and Alesco - have come out in the space of the week, warning of a sharp drop-off in building activity. Residential housing construction has come off 15 per cent, and commercial construction is down 20 per cent.
The anecdotal evidence in the sector is just as ugly.
Small architectural firms are hitting the wall. Home builders are seeing demand fall away as their wage costs continue to soar.
Property developers at new housing estates are releasing new stages of land without the usual incremental price hikes. The number of people inquiring is still high, but convincing them to put pen to paper and buy a house is proving a tough ask when headlines are reporting job losses en masse.
Retailers, of course, have had their backs to the walls for months now.
The Metcash chief executive, Andrew Reitzer, said this week that its trading conditions had not improved for the past four or five months, despite a glimmer of hope in retail trade numbers released this week.
After two straight months of falls, retail sales rose 0.5 per cent in July.
But economists were quick to point out the numbers were bolstered by food sales, cafes and restaurants.
Despite Reitzer's gloom, Metcash has the luxury of supplying groceries. Discretionary retail trends remain grim.
Department store sales fell 3.1 per cent (bad sign for Myer and David Jones) and clothing sales fell 6.4 per cent compared to the same time last year. Electronic goods retailing sales continued to be weak with July down 7.3 per cent, but up slightly on poor June numbers.
Many will hope the Reserve Bank, if it does not pull the trigger straight away when it meets on Tuesday, will at least give a firm indication it will look to lower rates in the next year. The market has priced in 120 basis points worth of cuts over the next 12 months, and would not welcome another rude shock.
pwen@fairfaxmedia.com.au
TWITTER: @philipwen11
Frequently Asked Questions about this Article…
What happened to the ASX 200 during the recent market panic and how did it finish August?
The ASX 200 plunged as much as 15% in the space of a week during the panic, before staging a bumpy recovery — ultimately finishing August down about 3.2%.
Why are analysts rebasing earnings expectations for Australian industrial companies?
Analysts are revising earnings forecasts lower because, despite a relatively disaster-free reporting season, the outlook for many industrial firms looks weaker unless companies have exposure to the resources sector; global uncertainty from the US and Europe is also weighing on expectations.
What signs are pointing to a housing slowdown in Australia despite an undersupply?
Two major building-material suppliers, CSR and Alesco, warned of a sharp drop-off in building activity. Statistics cited in the article show residential construction down about 15% and commercial construction down about 20%, plus anecdotal evidence of weaker demand from architects, home builders and property developers.
How have CSR and Alesco signalled risk to investors in the building sector?
Both CSR and Alesco publicly warned during the week that building activity is falling sharply, which signals to investors that revenue and earnings in building materials and related companies may come under pressure if construction activity continues to slow.
What is the state of retail sales and retail trading conditions, and what does that mean for retail stocks?
Retail sales rose 0.5% in July after two months of falls, but economists say that rise was largely supported by food, cafes and restaurants. Discretionary retail remains weak: department store sales fell 3.1% (a negative sign for Myer and David Jones), clothing sales fell 6.4% year-on-year and electronic goods were down about 7.3% in July. Metcash’s CEO also said trading conditions hadn’t improved for four or five months — all of which is a headwind for discretionary retail stocks.
Is the Reserve Bank of Australia (RBA) likely to cut rates soon and what are markets pricing in?
The article says many hope the RBA will at least signal a willingness to lower rates; the market has priced in about 120 basis points of cuts over the next 12 months. However, the article stops short of saying a cut is certain and notes the RBA’s decision is still awaited.
What does the article mean by a 'two‑speed economy' and a 'domino effect' for everyday investors?
The 'two‑speed economy' refers to divergence between sectors that are still benefiting (for example, some resources companies) and those being hit hard (retail, housing and parts of industry). The 'domino effect' describes how falling consumer confidence and job‑loss headlines can ripple across housing, construction and retail, amplifying weakness across multiple sectors — a dynamic investors should monitor when assessing sector exposure.
How should everyday investors interpret the current market volatility and sector-specific warnings?
The article suggests markets remain tetchy — global panic has eased but risks from overseas and domestic weak patches persist. Investors should pay attention to sector exposures (notably building materials, housing, discretionary retail and resources), watch earnings revisions and RBA guidance, and avoid overreacting to short-term swings while staying informed about structural shifts highlighted by company warnings.
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