Our share market versus the rest of them

^{Source: BT Financial Group, Premium Data}

What made news last week?

August off to a positive start

Global equity markets all gained over the course of last week. The bulk of the gains were seen on Monday with prices then largely range bound for the remainder of the week.

RBA keeps rates on hold

As expected the RBA left rates unchanged at 4.5% its August interest rate meeting. Weak economic data has given the RBA plenty of room to retain its 'pause' interest rate stance, It is clear that the next move is up but it is the timing that remains the point of conjecture.

US jobs data poorer than expected

On Friday the release of non-farm payroll data for July sparked a short equity market decline. The US economy lost 143k jobs in July. This was caused by a smaller than expected gain in the private sector coupled with the public sector shedding more jobs than anticipated.

Coal and Iron ore exports result in higher surplus for trade balance

The release of the Australian balance of goods and services for June showed that the proceeds from exports of iron ore and coal had led to the seasonally adjusted trade balance surplus for June being $3.54 billion versus expectations of $1.8 billion.

Australian building approvals weaker than expected

Building approvals fell in June by 3.3% instead of rising by the 2% that was the consensus expectation. There was great disparity between the states with New South Wales and Queensland reporting a sharp decline while in Victoria and Western Australia approvals rose.

Retail sales also a mild disappointment

Retail sales for June showed an increase of 0.2% which was lower than the expected increase of 0.4%

Wheat prices go parabolic

Wheat prices soared for the first four days of last week as a result of a classic supply shock and panic short covering. The Russian export ban on wheat as a result of chronic drought in the black earth belt sent prices limit up. The daily trading limit for wheat futures is 60 cents and on Friday the market had a range of nearly twice that. Initially on Friday prices went almost limit up with December futures hitting a high of 868 a bushel before the inevitable correction arrived, prices then plummeted 116 cents from that level to close at 752. A roller coaster ride especially when compared to the average trading range of two months ago of around 10 cents.

Australian farmers and wheat related equities benefit from higher wheat prices

The knock on effect of higher wheat prices coupled with good prospects for the Australian crop sent the prices of some wheat related stocks like Graincorp, AWB and Elders higher over the week. Australian wheat, being of higher quality, is not a direct substitute for the low protein Russian wheat that is affected by the export ban but the increased tightness in supply has already raised farmers pricing prospects for the impending harvest.

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Market movements

Market indicator	Friday 30 June, 2010	Friday 6 August, 2010	Weekly change (%)
Share markets
Aust. – All Ordinaries Index	4,493.50	4,566.10	1.62%
World – MSCI World Index	2,716.07	2,780.35	2.37%
US – S&P 500 Index	1,101.60	1,121.64	1.82%
Europe – Dow Jones EuroStoxx50 Index	2,742.14	2,779.34	1.36%
UK – FTSE 100 Index	5,258.00	5,332.39	1.41%
Japan – Nikkei 225 Index	9,537.30	9,642.12	1.10%
Volatility Index (VIX)	23.50	21.74	-7.49%
Commodities and bonds
Oil (West Texas Intermediate)	USD 78.95	USD 80.70	2.22%
Gold	USD 1,182.40	USD 1,205.30	1.94%
US 10-year bond yield	2.91%	2.82%	- 9 bps
Aust. 10-year bond yield	5.21%	5.15%	- 6 bps

Australian dollar

The Australian dollar posted another weekly gain. In the wake of the RBA's decision to leave interest rates unchanged the dollar blipped downwards but it then recovered. Strong trade data for June which was released mid-week was a positive for the dollar and immediately following the release of the data it gained half a cent against the US dollar.

Friday 30 June, 2010	Friday 6 August, 2010
0.9013	0.9161

What to watch next week

Consumer sentiment released on Wednesday

The Westpac/Melbourne Institute consumer sentiment survey is issued on Wednesday. After relatively weak building data, softer house prices and shakiness in equity markets observers will be watching for an indication of how resilient the consumer is.

Australian unemployment data

On Thursday the ABS will release employment figures for July, the unemployment rate is expected to remain steady at 5.1%

US interest rate decision

The FOMC meets to decide on interest rates on Tuesday, while the decision to keep interest rates on hold is a certainty there will be a focus on the language used in the accompanying statement.

US CPI data may prove influential

Inflation data in the form of CPI and core CPI will be released on Thursday with consensus expectations of 0.2% for CPI and 0.1% for core CPI. Large deviations to the downside will increase expectations of further Federal Reserve measures aimed at making monetary policies more accommodative.

US retail sales and Michigan consumer sentiment

Both of these economic data releases will be closely watched and surprises in either direction will likely impact on equity and bond markets.

Key market performance

 Australia
The ASX -200 rose over the week as it moved in concert with the US market. Interestingly bonds finished up, with yields slipping and this doesn't normally occur simultaneously with equity market gains. This perhaps indicates the gains were fragile. The same situation occurred in the US with ten year yields there hitting 2.82% after the weak payroll report.

 US
In the US the S&P 500 ended up by 1.82% following on from a strong July performance. Sentiment was negatively affected on Friday by weaker than expected non-farm payroll data but the bulls proved resilient and the loss was fleeting.

 Europe
Equities in Europe strengthened over the week but not by as much as in the US and Australia. The Euro continued to strengthen as the sovereign debt woes of only three months ago receded from investors short term memories.

 Japan
The Nikkei rose over the week with most of the gain coming on Tuesday following a strong Monday session in the US. The Yen rose to an almost 15 year high against the US dollar and which kept a brake on the share price gains of major exporters.

Commodities

Gold
Gold prices rose towards the end of the week and regained the $1,200 level. One positive factor was a slew of weak economic data in the US which triggered talk that further easing by the Fed may be necessary to keep the fledgling economic recovery on track. This increased fears of future inflation which in turn depressed the US dollar and buoyed gold.

Crude Oil
Crude oil prices gained over the week but the increase was pared on Friday after weak non-farm payrolls caused prices to fall quite sharply.

Outlook for markets

The S&P 500 is still clinging to its 200 day moving average which is often keenly watched as an indicator of the markets trend. Further negative news, especially from the US or China, could spark a downside move but in the absence of such catalysts the route of least resistance is up.