To quote my Editor in Chief, “With all this focus on the budget, you’d think there’s nothing else going on in the world.”
And he’s right. For the entire week the papers have been consumed with a very non eventful budget. But believe it or not, other things have been happening.
I’m going to start the week with a quote that nearly made me laugh out loud last Friday.
“While there are still risks in the global economy, Australia has one of the strongest and most stable economies in the world with one of the most secure financial systems, as we demonstrated throughout the global recession.” Said money fiddler, Wayne Swan.
His statement is a “mine’s bigger / better / faster ner ner” to other countries. You can’t help but feel it’s counting your chickens before they hatch.
After two days of Australian market free fall last week, our markets showed were hardly immune to what happens in the global markets.
And, we haven’t avoided the great recession, we just delayed it.
In true credit crunch style, the EU has decided that the only way to fix a debt problem is to hand over more money. This time, it’s to the tune of USD$1 trillion dollars.
A trillion is a stupidly large number. And because most of us don’t know what it looks like you can click here to get an understanding of how much cash it would be. Or, and let’s be honest, it’ll never be cash, just some zero’s, this is what it will look like on the banks computer screen ‘$1,000,000,000,000.00′.
It’s pretty obvious that the markets have no faith in the plan as the price of spot gold has reached two new highs this week. This solution is looking like a band aid for an open wound.
But no matter how much money is thrown at the problem, two things haven’t really been clarified yet.
Firstly, Greece still has to pay back the debt. They haven’t been able to manage their books in the past, so what all of a sudden makes them capable of it now? They’ve run the country into horrific debt for as many years as they could and now they’ve been caught out.
Secondly, traders and investors around the globe aren’t convinced that this is the solution. Many bloggers, and even some of the mainstream media have reported the general feeling across the market is this rally will be short lived. And, in the long term it will only fuel inflation.
Think about it, this hand out has just delays the problem.
But before we can even worry about inflation, we have to worry about the ‘regulators’ wanting to fiddle with the markets again.
On Wednesday, the Australian Financial Review reported on how American markets were planning to overcome another trading glitch, should it occur again. Regulators in the US have been meeting with exchanges and they believe they’ve come with the perfect solution.
The proposed changes suggest that ‘market circuit breakers’ should be applied in times of extreme volatility. That is, when too many participants in a free market try to dump a stock, these circuit breakers would slow down trading volumes so the stock market couldn’t plunge, or crash like we have seen recently.
They haven’t decided yet whether the ‘trigger’ should be the volume or price of the stock. Either way, it’s a really stupid idea.
So basically the regulators are saying ‘we’ll stop the stocks from going down’! So much for a free market system.
This sort of overreaction ‘we must control the market otherwise we’ll all lose’ happens every now and when the market does something no one can predict.
It’s odd how one event can dominate the news, and another can be completely ignored. Some interesting reports have come through suggesting that Beijing’s property market is on the brink of collapse.
The initial reports inform us that since 11th April, the average sale price of a house or apartment in Beijing has ‘plunged’ 31.4%. In one month!
That’s a massive drop in just over 30 days. And this drop shows the early signs of the property sector slowing down in China. There’s already plenty of speculation suggesting it’s been orchestrated by the Chinese government.
What’s interesting is that this occurred on last night our time, and the Australian papers this morning can still only whine about the budget! You’d think that such a down turn of sale prices, from a country we rely on to support us would at least make one newspaper…
And to wrap this Friday, the all important American retail numbers come this week. Now despite my best efforts to keep consumerism alive in the US, I may have failed.
It’s been said that the US consumer isn’t as ‘strong’ as it previously was, and the consumer will be to prove the ‘weak link‘ in the economic recovery.
Consumer spending is responsible for two thirds of the economic activity in the US. Two thirds!
How are the American people at fault? They’ve lived on a diet of credit for many years and have only now discovered that buying things with bank money probably isn’t the way to prosperity, or dare I say it, happiness.
So, what’s the solution to fix this ‘weak link’? I’m sure it will involve some form of credit… oops! I meant stimulus.
Now let’s have a look what happened on the market’s yesterday…
The S&P/ASX 200 added 79 points to close at 4,652.80. The ‘good news‘ from the jobs data pushed the index higher for the day. However an ordinary session in the US has seen the Aussie market start in the red today.
The Dow Jones Industrial Average dropped by 114 points to 10,782.95. The retail sector dragged the market down as investors are slightly nervous ahead of the April retail sales data to be released on Saturday our time.
The FTSE closed up 50 points to 5,433.73, which is a two week high for the index. The commodity sector for the Footsie did quite well but early reports have shown the that trade deficit grew in March to £7.5 billion (AUD$12 billion).
Demand for imports has increased but the Bank of England (BoE) is counting on the weak pound to hopefully boost the country’s exports.
The Nikkei ended the session higher by 226 points to 10,620.55.
Gold dropped off overnight, however demand is still strong for physical bullion and exchange traded funds ‘soaring‘ in the US.
The price of spot gold in Australian dollars is trading at $1,378.55 while in US Dollars it is trading 1,234.93. The price of silver in Aussie dollars is $19.43 and in US Dollars it is $21.70.
The Aussie dollar versus the US dollar was USD$0.8955, and gained against the Japanese Yen JPY83.03
Crude Oil closed at USD$74.04
For the biggest movers on the market yesterday click here…
That’s another week in the markets over and done with. See you on Monday.
Shae.
