Government debt was again a factor weighing down the performance of the Australian sharemarket in July.
The All Ordinaries Index fell 3.4% to close the month at 4,500.50 points, marking a poor start to the new Financial Year. Global sharemarkets were all weaker in July with the Dow Jones Index falling 2.2%, the FTSE falling 2.2%, the Nikkei 225 falling 0.6%.
This time the issue was not Greece, rather the U.S. and the associated politics of raising the US government’s borrowing limit. At the time of writing there is relief that U.S. lawmakers have reached a last-minute compromise on spending cuts and a deal to lift the debt ceiling to avoid default (with the Australian sharemarket up 1.6% today).
Today, U.S. President Barack Obama announced a last-minute deal to raise the U.S. borrowing limit and urged lawmakers to "do the right thing" and approve the proposed agreement. The deal still needs approval in both houses of Congress.
Sharemarkets don’t like uncertainty and the recent negotiations in the U.S. have seen a spike in market volatility and made it difficult for investors to have confidence. I expect the sharemarket to return fundamentals with share prices driven by economic activity and company earnings over the coming months.
In other economic news, there was weaker than expected housing figures in July, with many capital cities experiencing a decrease in house prices in the June quarter. This, coupled with an Australian dollar at record levels, is making it very difficult for the retail sector.
In more positive news, the Reserve Bank of Australia left interest rates on hold in July and is expected to maintain this position for this month’s board meeting.
The Australian dollar also continues to strengthen on the back of political uncertainty in the U.S. and is currently buying US110.42 cents to 1 Australian dollar.
For more information please contact Ryan Love on 1300 856 338 or e-mail ryan.love@apexpartners.com.au.
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