Global markets (in particular in the US) rebounded strongly in April. However, the Australian share market was flat with concerns of a high Australian dollar and uncertainty surrounding implementation of the proposed carbon tax.
The All Ordinaries Index retreated 0.6% in April to close at 4,899 points. Global markets were all higher with the Dow Jones Index gaining 4.0%, the FTSE gaining 2.7%, the Hang Seng gaining 0.8% and the Nikkei 225 gaining 1.0%.
For many months I have remained perplexed at the underperformance of the Australian equity market, particularly when compared to the gains made in the US.
At present, it is hard to question the fundamentals of the Australian economy. We have a 60-year high for the terms of trade and strong demand for our exports. This is providing a substantial income stream for the nation and is also supporting investment. The labour market is also in strong shape, supporting confidence and household income.
That said, it seems that momentum in domestic-oriented sectors remains hard to come by. The November 2010 rate hike certainly seems to have achieved its purpose of keeping consumerism in check, with households seemingly focused on paying down debt.
Recent softness in the housing market arguably point to consumer caution being more firmly entrenched than initially expected. All told, externally-oriented industries remain the main support for growth. It does seem unlikely that we will see a resurgent consumer anytime soon (particularly given the rise in the price of petrol and absence of strong house price gains).
The Australian Dollar continued to strengthen toward record levels – good news for those travelling overseas and it is currently buying US109.38 cents to 1 Australian dollar.
The Reserve Bank of Australia left interest rates on hold in March. The RBA board meets today to assess interest rates, with expectations for the cash rate to remain at 4.75% per annum. Economists now don’t expect a rate rise until the second half of 2011.
For more information please contact Ryan Love on 1300 856 338 or e-mail ryan.love@apexpartners.com.au.
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