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Markets Overview
Summary
- Reduction in the official cash rate by 0.25% to 7.0%
- The S&P/ASX 200 Accumulation Index rising by 4.1%
- Australian property securities rebounded strongly in August
- Earnings results prove to be generally satisfactory.
Economic highlights
Following a strong gain of 1.1% in the previous month, the US Consumer Price Index (CPI) recorded another larger than expected increase of 0.8% in July. This lifted its annual rate of growth to 5.6%, the fastest pace since January 1991. The latest increase was largely reflective of surging energy prices, which rose by 4.0%. However, unless the oil price rebounds to its previous highs, the peak in US inflation may have passed, with energy usage patterns showing signs of weakening. The country’s economic growth rate (GDP) increased by a seasonally adjusted annualised rate of 3.3% in the June quarter, substantially ahead of expectations for a gain in the region of 2%. The result was significantly buoyed by the recent one-off Federal stimulus measures, raising the spectre of a slowdown later in the year, in line with falls in a range of forward-looking indicators.
In Europe, regional GDP declined by 0.2% in the June quarter, lowering the annual rate of growth to 1.5%. This was the weakest quarterly result since 1995. Whilst such an outcome would normally be expected to herald an easing in monetary policy, a senior official from the European Central Bank (ECB) recently suggested that "monetary policy at the moment is roughly where it should be and I think the discussion about declining rates in Europe is premature".
In Australia, private new capital expenditure rose by 5.7% in the June quarter, more than double consensus forecasts, which had centred on a gain of 2.0%. Moreover, the previous quarter’s result was revised significantly higher, from an original fall of 2.5% to a gain of 1.0%. Rather unsurprisingly, a sectoral breakdown of spending revealed that the major contributions came from the mining (+8.1%) industry, followed by the collective contribution of the ‘other’ (+7.2%) industries, which comprise retail, finance, transport and storage.
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