End of financial year in sight
The end of the 2013-14 financial year is in sight. So it is an opportune time to check the performance of key markets and indicators.
There has only been one change in interest rates – the quarter per cent rate cut delivered in August 2013, with cash now at 2.50 per cent. The 90 day bill rate has fallen from 2.81 per cent to 2.70 per cent over 2013-14 while 10-year bond yields are little changed around 3.68 per cent.
The Aussie dollar is only up modestly over the year. The Aussie finished 2012-13 at US92.75c and currently stands at US94c. We have calculated that the Aussie is 34th strongest against the US dollar of 117 currencies tracked.
The Australian sharemarket started 2013-14 with the All Ordinaries at 4,775.4 and currently the All Ords is near 5,363 points, up 12.3 per cent on the year. We estimate that Australia is 39th of 73 global bourses, or around the halfway mark. Best performer has been Argentina ( 152 per cent) followed by Venezuela (up 88 per cent).
Total returns on Australian shares (All Ordinaries Accumulation index) are currently up 17.3 per cent over 2013-14. Returns on dwellings are up 15.3 per cent while returns on government bonds have lifted by 4.2 per cent. A rare event – bonds, property and shares all rising over the past year.
In the six months of 2014, the All Ordinaries has only risen by 0.2 per cent, ranking Australia 55th of 73 nations. In terms of the currency, the Aussie dollar is up 5.1 per cent against the US dollar, making it the fourth strongest currency in the world.
One of the quietest weeks in the year lies ahead – that is, in terms of new economic information. On Wednesday, the Reserve Bank Deputy Governor, Philip Lowe, will moderate a panel discussion on “G20: Meeting the Global Challenges? – Strengthening the G20's Accountability and Effectiveness Conference”, to be hosted by the Lowy Institute in Melbourne.
Also on Wednesday, the Bureau of Resources and Energy Economics (BREE) will release the June quarter “Resources and Energy Quarterly” – a publication containing the latest views and forecasts from the Government’s mining resources analyst.
On Thursday, the Bureau of Statistics issues the Financial Accounts publication for the March quarter as well as data on job vacancies for the three months to May. The Financial Accounts contains a wealth of data including the latest estimates on household wealth as well as holdings of shares and bonds by foreign investors and cash holdings by fund managers.
Overseas: US housing in focus
In contrast to Australia, there is plenty of fresh information for investors to digest in the US in the coming week.
The week kicks off on Monday with the mid-month update on the Chinese manufacturing sector – the supposed “flash” HSBC Purchasing Managers index. The index is compiled from a relatively small sample of firms, but strangely financial markets still sweat on the result.
Also on Monday in the US is the release of data on existing home sales for the month of May. A 1.4 per cent lift in sales is expected.
On Tuesday there is a rash of data releases in the US including home prices, consumer confidence, new home sales and the influential Richmond Federal Reserve survey. The data on home prices is produced by the Federal Housing Finance Agency and Standard and Poor’s/Case Shiller. There are differences in their approaches, as highlighted by the 6.5 per cent annual growth in the FHFA measure and the Case Shiller survey of 20 cities that shows a 12.4 per cent annual lift in prices. The regular weekly chain store sales figures are also issued on Tuesday.
On Wednesday, revised US GDP data for the March quarter is released and may now show a bigger 1.6 per cent annualised fall, due largely to harsh winter weather. Figures on business investment (durable goods orders) are also issued on Wednesday.
On Thursday, data on personal income and spending is issued together with the Kansas City Fed index and the weekly estimates of jobless claims (or new claims for unemployment insurance).
And on Friday, consumer sentiment data is issued.
Sharemarkets, interest rates & the Aussie dollar
The majority of private sector economists believe the next move in the cash rate is up, but not until late this year (November/December) at the earliest.
But financial markets haven’t totally ruled out the chance of a rate cut. The overnight indexed swap market suggests there is a small (at most 8 per cent) chance of a rate cut in the next nine months. In a year’s time, the cash rate is still expected to be unchanged at 2.50 per cent. So while economists may be predicting higher rates ahead, that is certainly not the case by traders and investors in financial markets.