The side ways Australian market
09 July 2014
June was the ASX's weakest month since January, with the accumulation index down 1.5% and prices falling 1.8%. It was not a great sell off, but the Australian market is certainly not emulating the frothiness of the international markets. Overall, the market is trading in a tight range. The ASX200 is moving between 5500 and about 5400. That leaves dividend yields as the source of returns, which remain the focus for many SMSF investors.
JP Morgan provides an international comparison:
"The S&P500 put on 1.9% for the month and the Nikkei 225 3.6% while the Euro Stoxx 50 lost 0.5%. The UK market (FTSE100 -1.5%) slipped as the Bank of England appeared to lay the ground for a more hawkish stance. Emerging markets had a positive month (MSCI EM +2.2% in USD). Locally, the mining- heavy Materials index (-1.6% accumulation return) just failed to match the average, thus recording a fifth consecutive month of underperformance. REITs were the strongest major group (+3.3% accumulation), boosted by lower bond yields and the Westfield restructuring."
JP Morgan notes that retailers are warning of weak sales. Here is a sectoral analysis for June:
The question is, does this represent weakness that equates with buying opportunity? Morgan seems to think it is more of a sideways move.
Here is their take on bonds. The interest rate yields can hardly get lower, and will probably trend up (when interest rates rise, the capital value of a bond falls):
"After hitting an 11-month low in May, US 10-year yields ticked up in June. A strong CPI print contributed to the reversal but reassuring commentary on policy from Fed Chair Janet Yellen soothed nerves. By contrast yields at the Aussie long end saw their lowest levels since June 2013; the spread between the benchmarks was squeezed to 100 basis points, a level last seen in August. Eurozone bond yields were mostly lower and particularly so in the ‘peripheral’ markets, which were seen as potential beneficiaries of future asset purchases by the ECB; after the central bank’s policy meeting in June, at which it cut rates, ECB President Draghi said that “we aren’t finished here”.
The $A continues to be strong, but not as strong as the British pound:
"Dovish comments from Fed Chair Janet Yellen helped the Aussie as its carry-trade appeal outweighed soggy commodity prices. Sterling was the best-performing major currency in June, rising 2.1% against the USD and hitting a six-year high; the pound responded strongly to a speech by the Bank of England Governor in which he appeared to sound a more hawkish note."
Here is JP Morgan's take on commodities. A weaker iron ore price may eventually lead to a weaker $A, but that is only one influence amongst many:
"Concerns over supply growth and the outlook for Chinese demand continued to hang over the iron ore price, but a rally in the second half of June saw the benchmark spot contract, Tianjin 62% fines, break a run of five down months (+2.2%). However this was not before the price saw its lowest print since September 2012.
Base metals were mostly firmer in June despite concerns over China’s demand growth and the possibility of a financial squeeze on industry players following the emergence of an alleged fraud by an aluminium producer in Qingdao. The spot gold price had a healthy bounce (+4.8%), helped by dovish Fed rhetoric."
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