Monthly market commentary

July 2010

All market information is
kindly provided by Lonsec

Economic News

Economic indicators released in July were mixed. Australia's unemployment rate fell 0.1% to 5.1% in June, its lowest level since early 2009. Employment has outstripped expectations in recent months, rising by 284,000 between August and May and taking total employed to over 11 million for the first time.

Building approval figures fell for the third successive month in June, with the total number of Australian dwellings approved for construction falling a seasonally adjusted 3.3% in June, from May. 

Inflation rose by less than expected in the three months to June, with the Consumer Price Index (CPI) rising by 0.6%. At an annual rate, CPI increased 3.1% in the April-June period. This was less than the 3.4% expected, but more than the 2.9% recorded for the March quarter.

Retail sales rose 0.2% seasonally adjusted in June, which was lower than expected, suggesting retailers remain under pressure to continue discounting.

On 3 August, the RBA Board decided to leave the cash rate unchanged at 4.5%. The RBA statement observed that the global economy grew faster then trend over the year to mid 2010, albeit unevenly, with growth in Asia and Latin America much stronger then in the major developed economies. The RBA believes that the current setting of monetary policy is about average for the past decade and is currently appropriate. The global outlook remains somewhat more uncertain than a few months ago, which is reflected in the volatility of financial prices.

Economic indicators in the US were disappointing. The US Labor Department reported that US companies hired fewer workers than forecast in July, with overall employment falling by 131,000, reflecting the dismissal of temporary census workers. The jobless rate held steady at 9.5%. 

In June Federal Reserve officials downgraded their outlook for the economy, for the first time since April 2009, projecting that GDP would expand between 3% and 3.5% in 2010. This was down from an April estimate of 3.2% to 3.7% growth.

The Commerce Department reported that June retail sales fell 0.5%, which was larger than expected. Building material and garden supply stores fell heavily for a second consecutive month. Excluding autos, all other retail sales slipped 0.1%, after falling 1.2% during May.

The Australian Dollar (AUD) appreciated by 5.4% against the US dollar and finished the month at US$0.8986. The AUD was generally stronger against other major currencies, gaining 1.6% against the UK Pound Sterling and 2.9% against the Japanese Yen.

Australian Equities

The Australian share market made solid gains in July, with the S&P/ASX 300 Accumulation Index rising 4.48%. The S&P/ASX Small Ordinaries Accumulation Index outperformed the large cap market, gaining 5.21%. Small caps have underperformed the large cap market over the 12 months to July 2010, registering 7.30% compared to 10.04% for the large cap sector.

Global Equities

Global equities were mixed in July. The MSCI World Accumulation Index rose 0.89% in AUD terms. The S&P 500 Composite Accumulation Index (A$) fell 0.16% while the FTSE100 Accumulation Index (A$) rose 4.58%.

Emerging markets were stronger in July, with the MSCI Emerging Markets Free W/Gross Div (A$) gaining 1.14%. The Index has risen 10.43% over the past 12 months, marginally outperforming the local equity market. 

Most other regional markets were stronger in July. In Japan, the Nikkei gained 1.65% for the month, while in Hong Kong the Hang Seng rose 4.48%. The FTSE gained 6.94%, and in Europe, the German DAX and French CAC40 indices rose by 3.06% and 5.82% respectively. 

REITS (Listed Property Securities)

The S&P/ASX 300 A-REIT Accumulation Index rose 1.10%, underperforming the broader domestic equity market for the month. Overall, the S&P/ASX 300 A-REIT Accumulation Index has risen 18.87% in the 12 months to July, outperforming the broader marker.

The UBS Global Real Estate Investors Index performed strongly in July, rising 7.83% in AUD terms. Over the 12 months to July 2010, the UBS Global Real Estate Investors Index was up 36.64% in AUD terms.

Fixed Interest

The Australian bond market rose slightly in July, with ongoing difficulties in Europe, along with poorer employment and sentiment data in the US, continuing to weigh on markets. The UBS Warburg Composite Bond Index rose 0.27% in July while the UBS Warburg Bank Bill Index rose 0.42%. Over the 12 months to July 2010, the bond and cash markets returned 7.81% and 4.05% respectively. 

The BarCap Global Aggregate Index Hedged $A rose 1.14% in July and has returned 11.07% for the year to the end of July 2010.