Market update - August 2011
There were several key themes and events dominating markets in August, and despite it being the local reporting season, attention was firmly focused on events in the United States and Europe, including:
- S&P’s downgrading of the US sovereign debt rating from AAA to AA+
- a slew of poor US economic data coming from the US, most notably 2Q GDP growth was revised down to an annual rate of 1.0% and non-farm payrolls up at 117K for July, and
- a worsening European situation.
Despite, a rally in the second half of the month, the Australian share market could not escape the turmoil in global markets in August with the ASX300 Accumulation Index returning -2.0%. This was the fifth consecutive monthly decline which ended in the lowest month end index value since mid 2009.
However, the Australian market demonstrated its defensive characteristics, holding up very well against global peers: the US benchmark S&P500 Index dropped by 5.7%, the UK’s FTSE100 was down 7.2% while the European bourses were hit the hardest with the German DAX Index down a huge 19.2%. France was down 11.3% and Italy lost 15.6%.
In August we saw financial market volatility extend its impact to the Fixed Income & Cash market segments. Overall Australian bond yields were largely unchanged by month end, but intraday volatility was significantly higher. Australian three and ten year bond yields traded in a wide range before ending the month 59 and 43 basis points lower in yield to close at 3.77% and 4.37% respectively