Late fightback boosts sharemarket

The sharemarket gained ground this week, after a late fightback on Friday afternoon, as data showed economic activity had increased by slightly more than expected this year.

The sharemarket gained ground this week, after a late fightback on Friday afternoon, as data showed economic activity had increased by slightly more than expected this year.

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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