Market Commentary

by Chris Limberg on Mar 15, 2013

The sharemarket rally has continued into the March quarter with the S&P ASX 200 finishing at 4,967. The market sectors benefiting from the rally in the period were Consumer Staples, Telecommunications, Healthcare and Financials.


  • Notwithstanding the above comment the recent upward market momentum appears to have stalled into a holding pattern as market analysts determine whether future company earnings justify the present valuations or whether the market is being driven by “weight of money” moving from fixed interest deposits as rates decline into shares which have the potential to offer higher income returns but with significantly higher volatility.
  • RBA left rates unchanged in March at 3%, the main points from the monthly minutes are:
    • The effects of the rate cuts are now slowly working their way through the Australian economy.
    • Inflation continues at a low rate which allows the possibility of the RBA to cut interest rates further to encourage growth
    • For the present, growth is predicted to be slightly below the long term trend
  • The March quarter observations with respect to the Australian economy are:
    • House prices in capital cities have improved and rental yields continue to rise
    • The high Australian dollar continues to affect exports
    • Commodity prices have eased but remain at historically high levels


  • Recent economic data releases have been mixed however the economy is improving slowly.
  • Short term headwinds for growth include an increase in payroll tax and a gradual ramp up of sequestration (automatic spending cuts of USD$1.2 trillion over the next 9 years). Its impact is estimated to be a drag of 0.5%pa on US Gross Domestic Product (GDP) growth.
  • Federal Reserve System (FED) Chairman Bernanke committed the FED to maintaining stimulus “until it observes a substantial improvement in the outlook for the labour market”. This implies that while unemployment numbers continue to be volatile the FED must continue the printing of cash until such time as the economy strengthens and the unemployment rate falls to its nominated level.
  • The Q4 earnings season was completed in February and the outcome was improved revenues with lower earnings resulting from one off costs. Corporate balance sheets and cash holdings are strong and at their best levels in years.
  • The federal debt ceiling remains unresolved with the US House of Representatives delaying the vote until May.


  • Euro zone Q4 GDP continues to contract.
  • Facing structural hurdles in 2013 including record high unemployment, major fiscal tightening and austerity. Highlighted by the February Italian elections resulting in a hung parliament with an anti-establishment movement receiving 25% of the vote.
  • Europe continues to be a source of uncertainty with key upcoming risks including Italian government negotiations and scheduled German elections in September.
  • World markets reacted unfavourably to the Cyprus rescue plan.


  • Economic and financial data are showing signs of stabilising and growth is expected to improve over the course of the year.
  • Previous monetary easing continues to feed though the economy and is expected to support modest growth increase this year. However, the monetary easing is causing concern for policy makers and further monetary easing is unlikely due to data on inflating house prices.

Should you have any queries or want to discuss the above or your portfolios please do not hesitate to contact us.