Markets ponder: what is the new trend?
The sharemarket finished May in the red after a busy month for investors that saw doubts about the future of US quantitative easing, a Chinese economic slowdown, falling commodity prices, a resurgent US dollar and volatility in global stocks.
The S&P/ASX 200 Index shed 4 points, to 4926.6 on Friday, while the broader All Ordinaries Index slipped 3 points to 4914.
Over the month, the S&P/ASX 200 Index dropped by 5.1 per cent, reversing almost all of April's gains. The All Ordinaries was 4.93 per cent down in May, while the dollar fell by 6.92 per cent. It was trading at US95.53¢ late on Friday.
The Reserve Bank's cut to the cash rate, which took it to a half-century low of 2.75 per cent, and the subsequent fall in the dollar against its US equivalent later that week set the tone for the month.
At the same time, the much-anticipated private expenditure data for the current and coming financial year, released on Thursday, suggested the mining investment boom was in its final days.
A key theme in May was growing optimism about the US economy amid growing expectations the US Federal Reserve could wind back its quantitative easing program by the end of the year.
Speculation over the Federal Reserve's next steps brought mixed reactions in global markets, with uncertainty driving investors' actions, analysts said.
"It's extraordinary policy we've had. It's uncharted waters, so with all that kind of uncertainty, markets don't seem to be sure how to trade," Deutsche Bank equities strategist Tim Baker said, adding the US markets "held up reasonably well".
RBS Morgans director of equities Tony Dennis said the big banks and Telstra bore the brunt of the move into the red in May as foreign capital left the sharemarket, while companies with US earnings benefited from the weaker dollar.
"You saw the resource stocks that had underperformed for that period started to do a whole lot better and you've seen a very nice gain - 10 per cent or so - out of BHP," he said.
"It signalled the end of one phase of the market. What everyone is wrestling with in the market is: what is the new trend?"
China's slowdown, also dominated attention over the past month. This weighed on the dollar and commodity prices.
"We've seen some further weakness in iron ore and steel prices in China," RBS senior currency strategist Greg Gibbs said. "So there's continued concern around the growth outlook there and what that means for Australian resources companies."
Iron ore prices slid 13.76 per cent in May. They fell from a high of $US130.20 on May 8 to a low of $111.60 on Thursday. Spot gold fell 3.99 per cent for the month.
The dollar maintained its 19-month low on Friday as currency strategists revised down their forecasts. "We're forecasting US93¢ near year-end and below 90s next year. That feels like the trend," Mr Gibbs said.