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.
Markets continue to grapple with an increasingly downbeat outlook for global growth, mostly over concerns about Europe's sovereign debt crisis and continued bank balance sheet problems in the region.
The Australian sharemarket initially rallied on the back of US President Barack Obama's highly anticipated jobs plan but pared back gains in the late afternoon. This left the 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 1.2 per cent, the first retreat in three weeks. The Australian dollar gave up ground for its first week in four, trading last night at $US1.061.
President Obama called on the US Congress to pass a jobs plan that would inject a bigger-than-expected $US447 billion ($421 billion) into the economy through infrastructure spending, local government subsidies and slashing payroll taxes paid by workers and small businesses.
Mr Obama said that economic growth had stalled in America, and with the US Federal Reserve's options to manipulate interest rates and money supply to stimulate growth largely exhausted, many economists agreed that only fiscal action could re-energise growth in the short to medium term.
Republican Eric Cantor, the House Majority Leader, signalled a willingness to consider some of the measures, providing some much-needed confidence for global markets.
In another boost for confidence, inflation in China retreated from a three-year high during August, reducing concerns that state planners might have to raise interest rates.
China's consumer price index rose by 6.2 per cent over August, compared with a 6.5 per cent rise in July.
Australia 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 during the second quarter. At the very least this suggests the economy overall has entered the current period of global uncertainty from a strong starting point.
However, labour market figures disappointed, with the unemployment rate jumping up 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 they provide a more current snapshot of the economy.
UBS head of investment strategy George Boubouras said sharemarket valuations remained attractive for long-term investors although defensive stocks - which perform well during economic slowdowns - were starting to become expensive.
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Frequently Asked Questions about this Article…
Why did the Australian sharemarket rally then pare gains after President Obama’s jobs plan?
The Australian sharemarket initially rallied on hopes that US President Obama’s proposed jobs plan would boost global growth, but gains were pared late in the afternoon. The S&P/ASX 200 closed up just 6.7 points (0.2%) at 4,194.7, while the market still finished the week down 1.2%.
What is in President Obama’s $447 billion jobs plan and why did markets react?
The plan proposed injecting about US$447 billion through infrastructure spending, local government subsidies and cuts to payroll taxes for workers and small businesses. Markets reacted because many economists see fiscal action as one of the few levers left to re-energise growth when central bank policy options are limited.
How are concerns about Europe’s sovereign debt crisis affecting investors?
Markets continue to wrestle with a downbeat global growth outlook largely driven by worries over Europe’s sovereign debt crisis and bank balance sheet problems in the region, which is weighing on investor sentiment and global market performance.
What did China’s inflation data show and what does it mean for markets?
China’s consumer price index rose 6.2% in August, down from 6.5% in July. That retreat from a three-year high eased fears that Chinese authorities would need to raise interest rates, which provided a modest boost to global market confidence.
How is Australia’s economy performing amid the global slowdown?
Australia is showing mixed signals: real GDP surprised on the upside with growth of 1.2% in the second quarter, suggesting a relatively strong starting point, but labour market data were weaker—unemployment rose to 5.3% in August from 4.9% two months earlier.
What’s happening with the Australian dollar and why should investors care?
The Australian dollar gave up ground for the first week in four, trading around US$1.061. Currency moves can affect returns for investors in offshore assets and influence commodity and export-heavy sectors of the local market.
Are sharemarket valuations attractive right now for long‑term investors?
According to UBS head of investment strategy George Boubouras quoted in the article, sharemarket valuations remained attractive for long‑term investors, although some defensive stocks that typically do well in slowdowns were starting to look expensive.
What should everyday investors know about defensive stocks during an economic slowdown?
Defensive stocks tend to perform relatively well during economic slowdowns, but the article warns they were becoming expensive. That means investors should be aware that higher prices for defensive names could limit future upside, even though they may offer relative stability.
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