Market News this Week

Where to start this week’s wrap? It’s been a fairly slow news week, but a few crucial things have come through.

And what would the week be without a comment on property?

Steve Keen, the loser of the now famous bet about the prices of Australian housing, is preparing for his 224 kilometer from Canberra to Mount Kosciuszko. Being a good sport he says his happy to do this.

“I’m happy to walk from Parliament House to Mount Kosciuszko if I can draw attention to the absurdity of basing economic policy on making housing more unaffordable.” Says Keen.

Keen did go on to say that the second part of the bet “…is still alive and well”. The second part is that Australian property prices would drop 40% over ten to fifteen years.

Not a day goes by that Australian’s aren’t being ‘warned’ the housing will cost more, which means higher rates according to the RBA, oh and of course, let’s not forget about the housing shortage.

Many will tell you that this growth is supposed to be fantastic for all Australians, but the honeymoon just can’t last forever.

And nothing says growth and good news like a batch of numbers to tell you what direction the market is taking!

More data was released this week, this time from the Westpac-Melbourne Institute. The Index of economic activity showed a 6.3% growth for January. The papers were splashing around the headline ‘Australia’s economic growth is set to continue.‘

The growth increase is, as it always seems to be, is a result of high commodity prices. Other factors weren’t forgotten, like more industry production, corporate profits and domestic labour markets all contributed to the higher growth.

What the report has neglected to mention is how much of this activity is stimulus driven. Jobs were ‘created’, we spent more money than we had and China pumped so many Yuan’s into their country that they couldn’t get enough of our resources for those big fancy buildings they didn’t need.

What will happen when the music – stimulus – stops?

But then again, Australia is apparently the ‘economic envy of the world‘. Yep, that’s right. Some US based economist believe we are in an enviable position, but he does point out that our growing ties to China will have its risks.

According to this report, we have a good diversified exposure to international markets, including emerging economies. After reading this article, you’ll wonder if the Prime Minister office has written this. It’s all about ‘feeling good’.

But it’s not so much the story that I want to draw your attention too. It’s the comments from readers. These bloggers aren’t really buying to everything being so rosy.

“More propaganda”

“Are we sure we want to take the word of an American economist, considering the fact that it was the USA that started the whole GFC in the first place?”

“Nah! We’re just better at fudging the figures then the other countries. Look at our unemployment figures, if you want to have a laugh”

It’s interesting, that lately a large number of feel good stories seem to be making it to the media.

And we’ll end the week with a credit downgrade for the UK, and the US. That’s right, Moody’s investor services believe both countries are ‘substantially’ close to losing their AAA credit ratings.

For both countries, the costs of servicing their debts have increased and the governments have been told they must work on reducing the debt. However, Pierre Cailletrau the managing director of sovereign risk at Moody’s in London has said that they need to reduce their debts, but also have to work how to reduce their debt without damaging growth by removing stimulus measures too early.

I wouldn’t be worried about either country withdrawing stimulus yet. The UK’s still printing money and the Fed in the US have confirmed that rates will remain near zero for an ‘extended period’.

So if both countries are only potentially inches away from a credit rating will this derail all the feel good statements coming from the media?

The ones that are supposed to reinforce that the economic recovery is only around the corner?

Now on to the market numbers…

The S&P/ASX 200 spent most of yesterday in the red, despite the positive lead in from the US. However, the index did manage to finish 9 points higher, closing to 4,863.10

The Dow Jones Industrial Average gained 45 points overnight, ending the session at 10,779.17. The Consumer Price Index (CPI) data was released overnight our time. The CPI indicated that the cost of living the US hasn’t changed.

With the CPI not changing for the month of February, David Resler, chief economist at Nomura Securities International Inc, said that “Inflation is certainly no imminent threat to the US economy”.

Over in the UK, the FTSE closed down 2 points to 5,642.62. Commodity prices held steady overnight, but in the UK it looks like investors took a breather from the market after the recent gains.

The Nikkei was by down by 102 points, finishing at 10,744.03. As you can see below, the index will open up pretty close to the same point as last Friday.

Gold continues to enjoy a higher price as fears that the Greek debt saga won’t be resolved as quickly as the world would like. Not only that, but the Euro and the US dollar are becoming less attractive to investors. This is making gold all the more attractive, and practically a ‘second currency‘.

The price of spot gold in Australian dollars is trading at $1,225.46 while in US Dollars it is trading at $1,126.32. The price of silver in Aussie dollars is $18.93 and in US Dollars it is $17.40.

The Aussie dollar versus the US dollar was up a few pips overnight to USD$0.9193, and slightly higher against the Japanese Yen JPY83.06

Crude Oil closed at USD$82.15.

For the biggest movers on the market yesterday click here…

That’s end of another week. Have great weekend.

Shae.

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