Late fightback boosts sharemarket
For the week, the benchmark S&P/ASX 200 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 a growth of 2.4 per cent.
But the figures also showed the economy did not grow quickly enough to stop unemployment from rising - the unemployment rate has actually increased from 5.1 per cent 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 rates further if economic conditions demanded it.
On Friday, bond and currency traders were listening for any comments from leaders at the G20 summit in Russia, particularly comments about the war in Syria and the possibility of US missile strikes. Last week, fears about an imminent US intervention upset global markets, but this week investors were relieved to hear the prospect of an immediate escalation in the war had faded, with US President Barack Obama first seeking approval from Congress.
Eyes were pinned on US 10-year 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, well ahead of expectations of 55, for the highest reading since August 2005.
US non-farm payroll data also showed 176,000 positions were added compared with an estimated 175,000, while unemployment claims fell to 323,000 over the week compared with an estimated 332,000.
In Australian politics, pundits were wondering if a decisive election victory for either major political party would boost business confidence.
But an important indicator of sharemarket sentiment - the ASX 200 A-VIX Index - showed there will be no such boost to investor confidence.
In March this year, the Australian Securities Exchange replaced its current end-of-day volatility indicator - the S&P/ASX 200 A-VIX - with one that tracks traders' expectations in real time. The index is a tool for investors, researchers, 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, which is 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).
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The sharemarket finished the week higher after a late Friday rally. The benchmark S&P/ASX 200 gained 10 points (about 0.2%) to finish at 5145, while the broader All Ordinaries rose 18.7 points (around 0.4%) to 5144.
ABS figures showed Australia’s economy grew at an annual rate of 2.6% in the year to June, slightly above economists' expectation of 2.4%. The stronger-than-expected GDP print helped markets, as it signalled modest economic improvement while informing rate and investment expectations.
Although GDP growth was a touch stronger than expected, the article notes the economy didn’t expand quickly enough to prevent a rise in joblessness. The unemployment rate increased from 5.1% to 5.7%, reflecting a lag between output growth and labour-market recovery.
The Reserve Bank kept the official cash rate at a record-low 2.5% and said it retains the option to cut further if economic conditions warrant. For investors, that implies a low-rate environment may continue, which can support equity valuations but also keeps income returns from cash and bonds muted.
Bond and currency traders were monitoring comments from G20 leaders about Syria and the prospect of US missile strikes. Fears of immediate US intervention had unsettled markets the prior week, but those fears eased when the prospect of an immediate escalation faded, which relieved investors.
US 10‑year Treasury yields approached 3%, closing at about 2.99%, the highest since July 2011. US economic data also surprised positively: the services PMI rose to 58.6 (ahead of expectations) and non‑farm payrolls added 176,000 jobs versus an estimated 175,000, while weekly jobless claims fell to 323,000 — all signals of improving US conditions that moved markets.
The ASX 200 A‑VIX is a real‑time volatility indicator that tracks traders’ expectations of near‑term volatility in the Australian benchmark equity index—often called a "fear index." The index was at 15.628 this week, roughly mid‑way between the year’s high of 21.675 and low of 10.540 (readings over 30 are considered fear territory).
While pundits wondered if a clear election outcome might lift business confidence, the ASX 200 A‑VIX reading suggested there would be no immediate boost to investor sentiment. In short, a decisive political result doesn’t automatically translate into higher market confidence according to the current volatility indicator.
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