Australia
- The S&P ASX100 Accumulation Index lost 4.37% in July, as Global debt concerns continued to overshadow domestic issues
- Most of the market was negative, however resources (-2%) fell significantly less than the industrials (-4.7%)
- The outperformance of the resource sector was in part due to the return of M&A activity (MCC, SDL)
- The real weak spot continued to be domestic retail, with very soft sales figures pushing all of DJS, MYR, HVN & JBH down more than 10%
- What is already a challenging environment for growth was further undermined by restrictive government policy (carbon tax)
- The $A closed the month just over $1.10, at the top of its recent trading band It would seem the RBA is still on hold for the next few months. While they are still talking the next move being up, the market thinks otherwise
Resources
Coal (Coking/Metallurgical)
- Experiencing price resilience around US$330 per tonne level in past few months as markets settle post January Queensland floods
- March Japanese earthquake didn’t rattle market, despite country being a major coking coal importer
- Forecast Japanese steel mill production of 27 mill tonnes for remainder of 2011 would be down only 2.8% on first half
- Although Chinese imports remain subdued, good underlying demand with 1.97 mill tonne daily rate in April a new record
- Quarterly contract prices expected to remain above US$300 per tonne for balance of calendar year
Silver
- World’s top silver miner, Mexico’s Fresnillo plc, reported first half production of 21.5 mill ounces (2.6% higher than the 20.9 mill ounces of previous first half) and on track for annual 44 mill ounces, which is some 6% of world production
- Top Five silver miners account for 22% of global production with BHP Billiton and KGHM next (5% each), then Pan American Silver (3%) and Goldcorp (3%)
- Primary silver output represents 24% of total global supply, slightly behind co-product from lead/zinc mining (27%), recycled scrap (23%), copper mining (17%) and gold (9%)
- Price has corrected from near US$50 per ounce record in mid April 2011 and likely to stay around current $40 per ounce mark for balance of year
Uranium
- Japan’s biggest-ever earthquake on Friday 11 March triggered a series of tsunamis, highest of which was 38.9m (15 stories) and travelled up to 10km inland
- The island of Honshu was permanently shifted 2.4m east, while the earth’s axis moved 10cm for a period
- Even the ionosphere was affected with tsunami-generated space waves
- Back on earth, uranium markets were buffeted with prices and confidence falling significantly
- Outlook improving of late as testified by private Chinese group Hanlong bidding for ASXlisted Namibian uranium explorer Bannerman Resources
International
US
- Debt crisis seems to be averted now but given the ceiling has been raised 50 times in 70 years it was largely a political stunt anyway
- GDP growth has been revised down, manufacturing, employment and spending data is weak
- Risks of a second recession are rising
- Interest rates are at 0.25% and likely to stay low until the end of year
- Debt crisis has hurt investor sentiment and economy is slowing so downside risks are increasing but monetary policy is still the only positive factor
UK
- Manufacturing fell in July and 2nd Quarter GDP was just 0.2%, the International Monetary Fund (IMF) have warned that more stimulus may be required
- Interest rates are to remain on hold at 0.50 despite inflation and another round of QE possible
- Fundamentals are poor so there is no solid reason for a bull market in UK equities. Market may hold up providing the US maintains ground
Europe
- Greek default was rolled over but Euro debt problems still remain that have not been resolved.
- Economy is slowing, PMI for France and Germany at 21 month lows.
- Interest rates are currently at 1.50, ECB raised rates by 25bp but the need for further action is diminishing
- Trend is faltering given Euro debt problems, easing growth and rising rates. If US holds up then it may steady but otherwise it is turning bearish
ASIA
China
- PMI declined to its lowest level in 2 yrs indicating slowdown is underway & inflation should follow, some are warning of a hard landing but we rate this is a small risk at present
- Interest rates at 6.5, close to peak in monetary policy
- No trend evident but value is building as 18 mth range continues, look for an upward break once monetary policy is normalised
Indonesia
- Foreign capital inflows are among the highest in Asia attracted by higher yields and solid growth, inflation has eased
- Interest rates are at 6.75 with currency appreciation doing most of the work but some increases are still likely
- More new highs makes Indonesia among the best performing markets globally, probably overbought but still positive. Unlikely to be sustainable if other markets roll over
Bonds
US
Yields at YTD lows. Hard to imagine that US bonds are viewed as a safe haven given the risk of default (we wouldn’t touch them) but clearly the bond market has no expectation of that happening
UK
Yields are now below GFC lows in a strong indication that all is not well in the UK, this is highly unusual given the current inflation rate
Corp Bonds
Spreads have increased but corporate & EM bonds are performing strongly on plunging yields
Download update:
July Market update
