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BT Monthly Markets Chart Pack – December 2007
An overview of movements in global financial markets
2
Global share markets mixed in December
December was a mixed month for global share markets as investors continued to worry about the usual suspects – weakness in the US housing market, the fallout from the global credit crisis, and the threat of a recession in the US. Bourses in the US and Japan were weaker, while share markets in Europe, the UK and China made positive gains.
In Australia, the S&P/ASX 300 Accumulation Index closed the month down 2.64%. The local market was dragged lower by the listed property sector after Centro Properties became the first major (local) casualty of the global credit crisis. Weakness in mining stocks also affected performance as a softer outlook for global growth weighed on commodity prices.
3
Source: BT Financial Group, Datastream
S&P/ASX 300 Accumulation Index – year to 31 December 2007
The Australian share market closed the year on a weaker note
34,000
35,000
36,000
37,000
38,000
39,000
40,000
41,000
42,000
43,000
31/12/06 28/02/07 30/04/07 30/06/07 31/08/07 31/10/07 31/12/07
4
Key Australian economic news – December
The Reserve Bank of Australia (RBA) left interest rates on hold at 6.75% following its December meeting, though their decision came as no real surprise in light of recent financial market turmoil. Rates are widely expected to remain on hold again when the RBA next meets in February, unless the latest CPI data on 24 January comes in on the high side.
Employment figures were surprisingly weaker in November. The unemployment rate came in at 4.5%, while October unemployment was revised up from 4.3% to 4.4%. This brought the unemployment rate up 0.3% from its September low of 4.2%, putting it back to where it was in March of this year.
After unexpected weakness in October, retail sales rebounded strongly in November, up 0.8%. This took annual retail sales growth to 8.1%; the fastest growth since mid-2004.
November building approvals came in well above market expectations, rising by almost 9% over the month.
Source: BT Financial Group
5
The Australian dollar slightly weaker in December
The Australian dollar (A$) was slightly weaker against the major currencies in December amid ongoing concerns over the global economic outlook and the impact that slower growth would have on commodity prices.
At the end of December:
A$1 bought US$0.8751 -1.1%
€0.5999 -0.7%
¥97.77 -0.6%
Source: BT Financial Group
6
Currency markets – A$ per US dollar
Source: BT Financial Group. Figures at 31 December 2007.
0.5000
0.5500
0.6000
0.6500
0.7000
0.7500
0.8000
0.8500
0.9000
0.9500
1.0000
Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07
The Australian dollar versus the US dollar…
7
Currency markets – A$ per Euro
Source: BT Financial Group. Figures at 31 December 2007.
the Euro…
0.5300
0.5450
0.5600
0.5750
0.5900
0.6050
0.6200
0.6350
0.6500
Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07
8
and the Yen
60
65
70
75
80
85
90
95
100
105
110
Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07
Currency markets – A$ per Yen
Source: BT Financial Group. Figures at 31 December 2007.
9
Official world interest rate movements – December
Both the US Federal Reserve and the Bank of England cut interest rates in December, while the European Central Bank and the Bank of Japan decided to leave rates on hold.
Current rate Last movedDirection of last move
Australia 6.75% Nov 2007
US 4.25% Dec 2007
Europe (ECB) 4.00% Jun 2007
Japan 0.50% Feb 2007
United Kingdom 5.50% Dec 2007
Source: BT Financial Group
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World growth is expected to be 3.7% this year, and a further 3.2% in 2008
Source: Consensus Economics
2008 world growth estimates
Month of estimate
May 07 Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07
Australia 3.5% 3.5% 3.5% 3.6% 3.6% 3.7% 3.7% 3.6%
US 2.8% 2.9% 2.8% 2.6% 2.4% 2.4% 2.3% 2.1%
Japan 2.2% 2.2% 2.2% 2.1% 2.1% 1.9% 1.8% 1.5%
China 9.8% 9.8% 9.9% 10.6% 10.6% 10.7% 10.5% 10.5%
Germany 2.3% 2.3% 2.4% 2.4% 2.3% 2.2% 2.1% 1.9%
UK 2.3% 2.3% 2.2% 2.2% 2.1% 2.0% 1.9% 1.9%
World 3.4% 3.4% 3.4% 3.4% 3.5% 3.4% 3.4% 3.2%
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Source: BT Financial Group
31 December 2007
Global share market returns
1 year 3 years (pa) 5 years (pa)
Global
S&P 500 Index (US) 3.53% 6.61% 10.79%
Nasdaq (US Tech.) 9.81% 6.83% 14.71%
Nikkei 225 (Japan) -11.13% 10.04% 12.28%
Hang Seng (Hong Kong) 39.31% 25.03% 24.44%
DAX (Germany) 22.29% 23.76% 22.77%
CAC (France) 1.31% 13.68% 12.88%
FTSE 100 (UK) 3.80% 10.28% 10.38%
Australia
S&P/ASX 300 Accum. Ind. 16.22% 21.01% 21.11%
S&P/ASX Small Ordinaries 17.05% 23.39% 25.77%
S&P/ASX 300 Listed Prop. -8.36% 11.45% 14.77%
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Short-term asset class performance
Source: S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$
1-year rolling returns to 31 December 2007 (%) Best performing asset class for the year
2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992
Australian cash
6.73 6.02 5.74 5.62 4.90 4.77 5.24 6.27 5.01 5.14 5.63 7.57 8.06 5.34 5.39 6.92
Australian bonds
3.46 3.14 5.80 6.96 3.05 8.81 5.45 12.08 -1.22 9.54 12.23 11.87 18.63 -4.66 16.32 10.41
Australian property
-8.36 34.05 12.70 32.18 8.81 11.85 14.99 18.79 -4.20 18.37 21.76 14.24 14.28 -6.32 29.97 6.59
Australian shares 16.22 24.51 22.45 27.92 14.96 -8.64 10.49 6.31 19.52 9.75 12.15 14.54 20.75 -8.82 40.61 -2.88
International bonds
-0.40 -1.24 -0.48 6.05 -14.11 8.63 7.48 19.63 -10.26 22.49 22.18 -2.96 24.13 -10.81 15.27 16.54
International shares
-2.60 11.49 16.84 9.94 -0.76 -27.44 -9.96 2.19 17.20 32.34 41.63 6.24 26.05 -8.43 24.47 4.78
13
Source: S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$
1-year returns to 31 December 2007 (%)
Short-term asset class performance (cont’d)
-2.6
-0.4
16.2
-8.4
3.5
11.5
-1.2
24.5
34.1
3.1
31 December 2006
31 December 2007
Australian bonds
Listed property
Australian shares
Global bonds
Global shares
14
Long-term asset class performance
Note: Accumulated returns based on $1,000 invested in December 1984Source: S&P/ASX 300 Accumulation Index, MSCI World ex-Australia (net dividends) Index in A$, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in A$
31 December 2007
Australian bonds
Listed property
Australian shares
Cash
Global shares
$0
$1,500
$3,000
$4,500
$6,000
$7,500
$9,000
$10,500
$12,000
$13,500
$15,000
$16,500
$18,000
$19,500
$21,000
$22,500
$24,000
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
15
Source: BT Financial Group. West Texas Intermediate oil price at 31 December 2007.
Oil prices – US$ per barrel
Oil closed the year 57.1% higher at US$95.99 a barrel, before going on to hit US$100 in early January
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
16
Summary
We expect global growth to hold up, though the threat of a recession in the US has obviously increased recently and this will pose a significant risk to future growth.
The underlying strength of the Australian economy looks set to continue, though any significant deterioration in global growth will obviously have an adverse effect locally.
Despite the RBA’s decision to leave interest rates on hold in December, the Bank clearly retains a tightening bias. Whether the RBA pulls the trigger on another rate hike in February will depend largely on the next round of inflation data due out in late January.
The threat of a slowdown in global growth will mean a rougher ride for the Australian dollar in the near-term, though it looks set to remain at high levels.
Gains in global share markets, including here in Australia, are likely to slow in the first half of 2008.
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This presentation has been prepared by BT Financial Group Limited (ABN 63 002 916 458) ‘BT’ and is for general information only. Every effort has been made to ensure that it is accurate, however it is not intended to be a complete description of the matters described. The presentation has been prepared without taking into account any personal objectives, financial situation or needs. It does not contain and is not to be taken as containing any securities advice or securities recommendation. Furthermore, it is not intended that it be relied on by recipients for the purpose of making investment decisions and is not a replacement of the requirement for individual research or professional tax advice. BT does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this presentation. Except insofar as liability under any statute cannot be excluded, BT and its directors, employees and consultants do not accept any liability for any error or omission in this presentation or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise noted, BT is the source of all charts; and all performance figures are calculated using exit to exit prices and assume reinvestment of income, take into account all fees and charges but exclude the entry fee. It is important to note that past performance is not a reliable indicator of future performance.
This document was accompanied by an oral presentation, and is not a complete record of the discussion held.
No part of this presentation should be used elsewhere without prior consent from the author.
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