BT Monthly Markets Chart Pack – January 2008
An overview of movements in global financial markets
2
Global share markets weaker in January
It wasn’t the best start to the year for global share markets, with most closing January very much in the red amid continued fallout from the US sub-prime mortgage crisis and increasing fears of a recession in the US. Share markets in the US, Europe and Asia fell as much as 25% from the record highs posted just a few months ago as investors began to turn bearish, though they were able to pull back some of the losses late in the month.
The Australian share market was not immune to the volatility we saw in January, with the S&P/ASX 300 Accumulation Index closing the month 11.3% lower amid fears that a recession in the US will impact on global growth.
3
Source: BT Financial Group, Datastream. Global shares measured by the MSCI World (Price) Index to 31 January 2008
Despite recent market volatility, history shows that share markets usually bounce back over time
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Bond Market Crash
Aug 97
Asian Currency Crisis
Jul 98
Russian Bond Crisis
Jul 01
Tech Wreck
Sep 01
Attack on Twin Towers
Jun 07
US Sub-prime Crisis
Jan 91
Gulf War
Impact of major market events on global shares since 1990
4
Source: BT Financial Group, Datastream
S&P/ASX 300 Accumulation Index – year to 31 January 2008
The Australian share market started 2008 in the red
34,000
35,000
36,000
37,000
38,000
39,000
40,000
41,000
42,000
43,000
31/01/07 31/03/07 31/05/07 31/07/07 30/09/07 30/11/07 31/01/08
5
Key Australian economic news – January
The Reserve Bank of Australia (RBA) raised interest rates a further 0.25% at its early February meeting, taking the official cash rate to 7.00%. The Bank’s decision came on the heels of the latest CPI data which revealed increasing inflationary pressures. Interest rates are now at their highest level since November 1996.
Retail sales grew at a solid rate in December, rising by 0.5% after a 0.8% increase the month before. The rise was broadly in line with expectations.
The unemployment rate ticked down to 4.3% in December, confirming that the labour market ended 2007 on a strong note.
After showing remarkable strength through the second half of 2007, when the housing market staged a solid upswing despite rate hikes in August and November, building approvals showed a sharp reversal in December with activity falling an abrupt 16%.
Source: BT Financial Group
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The Australian dollar stronger against the greenback and the Euro in January
The Australian dollar (A$) has traded within the same US$0.86 to US$0.90 cent range now for the past couple of months as concerns over global growth continue to be offset by a strong local economy and a widening differential between US and Australian interest rates.
At the end of January:
A$1 bought US$0.8956 +2.3%
€0.6027 +0.5%
¥95.34 -2.5%
Source: BT Financial Group
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Currency markets – A$ per US dollar
Source: BT Financial Group. Figures at 31 January 2008.
0.5000
0.5500
0.6000
0.6500
0.7000
0.7500
0.8000
0.8500
0.9000
0.9500
1.0000
Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08
The Australian dollar versus the US dollar…
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Currency markets – A$ per Euro
Source: BT Financial Group. Figures at 31 January 2008.
the Euro…
0.5300
0.5450
0.5600
0.5750
0.5900
0.6050
0.6200
0.6350
0.6500
Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08
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and the Yen
70
75
80
85
90
95
100
105
110
Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08
Currency markets – A$ per Yen
Source: BT Financial Group. Figures at 31 January 2008.
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Official world interest rate movements – January
The US Federal Reserve raised interest rates twice in January, while the Bank of England, the European Central Bank and the Bank of Japan decided to leave rates on hold. The RBA moved rates higher at its early February meeting.
Current rate Last movedDirection of last move
Australia 7.00% Jan 2008
US 3.00% Jan 2008
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 3.2% this year, and follows an estimated 3.7% in 2007
Source: Consensus Economics
2008 world growth estimates
Month of estimate
Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 Jan 08
Australia 3.5% 3.5% 3.6% 3.6% 3.7% 3.7% 3.6% 3.6%
US 2.9% 2.8% 2.6% 2.4% 2.4% 2.3% 2.1% 2.0%
Japan 2.2% 2.2% 2.1% 2.1% 1.9% 1.8% 1.5% 1.5%
China 9.8% 9.9% 10.6% 10.6% 10.7% 10.5% 10.5% 10.4%
Germany 2.3% 2.4% 2.4% 2.3% 2.2% 2.1% 1.9% 1.8%
UK 2.3% 2.2% 2.2% 2.1% 2.0% 1.9% 1.9% 1.8%
World 3.4% 3.4% 3.4% 3.5% 3.4% 3.4% 3.2% 3.2%
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Source: BT Financial Group
31 January 2008
Global share market returns
1 year 3 years (pa) 5 years (pa)
Global
S&P 500 Index (US) -4.15% 5.28% 10.01%
Nasdaq (US Tech.) -3.01% 5.03% 12.59%
Nikkei 225 (Japan) -21.81% 6.08% 10.26%
Hang Seng (Hong Kong) 16.66% 19.57% 20.43%
DAX (Germany) 0.92% 17.21% 20.12%
CAC (France) -13.17% 7.56% 10.64%
FTSE 100 (UK) -5.21% 6.61% 10.51%
Australia
S&P/ASX 300 Accum. Ind. 1.53% 15.85% 18.72%
S&P/ASX Small Ordinaries -1.60% 15.45% 21.56%
S&P/ASX 300 Listed Prop. -23.30% 5.61% 11.19%
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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 January 2008 (%) Best performing asset class for the year
2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
Australian cash
6.78 6.09 5.77 5.62 4.95 4.82 5.05 6.32 5.09 5.13 5.54 7.45 7.96 5.66 5.30 6.74
Australian bonds
4.24 3.45 5.91 7.23 2.44 9.20 3.94 14.02 -1.89 8.86 12.72 11.29 20.10 -6.19 16.06 15.19
Australian property
-23.30 38.86 10.62 32.67 8.75 13.86 15.18 20.12 -6.51 12.91 27.10 10.63 20.93 -10.48 32.61 7.92
Australian shares 1.53 22.50 25.02 30.79 15.95 -11.28 7.28 11.94 15.72 10.84 13.45 10.86 29.98 -17.58 52.18 -3.00
International bonds
1.25 0.92 -1.99 6.57 -12.45 6.68 5.46 20.40 -6.85 23.43 15.65 -0.23 17.07 -2.64 7.08 20.93
International shares
-14.01 13.41 19.71 7.96 7.33 -31.04 -14.50 8.97 13.65 35.12 31.07 10.29 26.91 -8.68 23.84 7.37
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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 January 2008 (%)
Short-term asset class performance (cont’d)
-14.0
1.3
1.5
-23.3
4.2
13.4
0.9
22.5
38.9
3.5
31 January 2007
31 January 2008
Australian bonds
Listed property
Australian shares
Global bonds
Global shares
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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 January 2008
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
$24,000
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
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Source: BT Financial Group. West Texas Intermediate oil price at 31 January 2008.
Oil prices – US$ per barrel
After hitting the US$100 mark for the first time ever, oil closed the month 4.3% lower at US$91.75 a barrel
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
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Summary
We expect global growth this year to be positive, 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.
In raising interest rates in February, the RBA appears to have retained its tightening bias. But whether the RBA pulls the trigger on another rate hike in 2008 will depend largely on the Bank’s ability to bring inflationary pressures under control.
The Australian dollar looks set to remain range bound in the near-term, though the threat of a slowdown in global growth will mean a rougher ride.
Gains in global share markets, including here in Australia, are likely to slow in the first half of 2008.
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