Signs of uncharacteristic conciliation in US politics have given markets something to be hopeful about, even in the face of a grinding global economic slowdown.
SIGNS of uncharacteristic conciliation in US politics have given markets something to be hopeful about, even in the face of a grinding global economic slowdown.
The markets continue to grapple with an increasingly downbeat outlook for global growth, mostly on concerns about Europe's sovereign-debt crisis and its continued bank balance-sheet problems.
The Australian sharemarket initially rallied on US President Barack Obama's highly anticipated jobs plan, but pared back gains in afternoon trading.
This left the benchmark S&P/ASX 200 Index up just 6.7 points, or 0.2 per cent, to close the week at 4194.7 points. For the week, the Australian market lost 1.1 per cent, the first retreat in three weeks. The dollar also gave up ground, for the first week in four, trading last night at $US1.0628.
President Obama yesterday called on US Congress to pass a jobs plan that would inject a bigger than expected $US447 billion ($A421 billion) into the economy through infrastructure spending, subsidies to local governments and slashing payroll taxes paid by workers and small-business owners.
In his speech announcing the jobs package, Mr Obama admitted that economic growth had stalled in America. With the Federal Reserve's options to manipulate interest rates and money supply to stimulate growth largely exhausted, many economists would agree that only fiscal action can re-energise growth in the short-to-medium term.
Republican Eric Cantor, the House majority leader, yesterday signalled a willingness to consider at least some of the measures, providing much-needed confidence for global markets.
Inflation in China retreated from a three-year high last month, reducing concerns that state planners might have to raise interest rates. Official figures showed its consumer price index rose by 6.2 per cent over August, compared with a 6.5 per cent rise in July.
Australia, meanwhile is grappling with a slew of mixed data on how the economy is faring.
Economic growth surprised on the upside, with real gross domestic product increasing by 1.2 per cent in the June quarter. At the very least, this suggests the economy has entered the current period of global uncertainty in good shape.
Still, crucial labour market figures disappointed, with the unemployment rate jumping to 5.3 per cent in August, up from 4.9 per cent two months earlier. Given labour-force data is drawn from monthly figures, some argue it provides a better snapshot of the economy.
UBS head of investment strategy George Boubouras said sharemarket valuations were attractive for long-term investors. However, defensive stocks - stocks that perform well during economic slowdowns - are starting to become expensive.
''Fundamentals remain secondary to the many global macro headwinds,'' Mr Boubouras said.
In Britain, the Bank of England this week resisted pressure for a fresh round of funds to be injected into the economy as it left interest rates at a record low of 0.5 per cent, where they have been since March 2009.
The central bank also chose not to increase its quantitative easing program.
Spot gold yesterday recovered $US27.60 to $US1873 an ounce, still well below the record high of $US1921.15 hit this week.
Frequently Asked Questions about this Article…
How did President Obama's jobs plan affect markets and the Australian sharemarket?
Markets initially rallied on President Barack Obama's jobs plan, giving investors a dose of hope as signs of political conciliation emerged. In Australia the S&P/ASX 200 Index closed up 6.7 points (0.2%) at 4,194.7, although the market pared gains in the afternoon and finished the week down 1.1%.
What is in the US jobs plan and why could it matter to everyday investors?
The jobs package called for about US$447 billion to be injected into the economy through infrastructure spending, subsidies to local governments and cuts to payroll taxes for workers and small-business owners. The article notes many economists see fiscal action like this as a way to re-energise growth in the short-to-medium term, especially with the Federal Reserve's options limited.
Should investors be concerned about Europe's sovereign-debt crisis right now?
Yes — the article says global markets continue to grapple with a downbeat growth outlook largely driven by concerns over Europe's sovereign-debt crisis and ongoing bank balance-sheet problems, which remain a key macro headwind for investors to watch.
What do recent China inflation figures mean for interest-rate expectations and markets?
China's consumer-price index rose 6.2% in August, down from a 6.5% rise in July and retreating from a three-year high. That softer inflation reduced concerns that Chinese authorities would need to raise interest rates, which can be reassuring for global markets.
How are Australia's economic indicators affecting investor sentiment?
Australia recorded surprisingly strong real GDP growth of 1.2% in the June quarter, suggesting the economy entered global uncertainty in relatively good shape. However, labour-market data disappointed: the unemployment rate rose to 5.3% in August from 4.9% two months earlier, giving mixed signals to investors.
Are Australian shares still attractively valued for long-term investors?
According to UBS head of investment strategy George Boubouras, overall sharemarket valuations look attractive for long-term investors. He also warned that defensive stocks—those that tend to hold up during slowdowns—are becoming expensive, and that fundamentals are currently secondary to global macro headwinds.
What did the Bank of England decide this week and why does it matter to investors?
The Bank of England left its cash rate at a record low of 0.5% (where it has been since March 2009) and chose not to expand its quantitative easing programme. That decision signals limited additional stimulus from the BoE at this stage and can influence bond and currency markets.
How has the gold price been moving and what did the article report?
Spot gold recovered US$27.60 to US$1,873 an ounce in the latest session reported, but remained below the record-high level of US$1,921.15 hit earlier in the week.
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