Don’t expect too much of an impact on the stockmarket from the Federal Budget.
The Reserve Bank’s taken that role through its domination of monetary policy and besides there are still external factors influencing the market that have to be taken into account.
We have to remember that the dollar and resource companies’ earnings are major influences on our market that will have little relationship to what is going on within the domestic economy.
Sure, the value of the Aussie dollar influences corporate earnings and will help take the edge off inflationary pressures caused by higher oil prices.
But that’s at the margin; and earnings of the resource groups like BHP Billiton, Woodside, Santos, Rio Tinto, Oxiana and the like will be solid to brilliant over the course of the next year to 18 months, but for those companies beavering away in the domestic economy, things are going to get progressively tougher.
Who says so? The Reserve Bank. It’s planning to slow the domestic economy from more than 4% growth at the end of 2007 to less than 2% growth by the end of 2008. That will mean pressures on margins, pressures on costs, employment and growth.
The budget will only attack the edges of this trend by hopefully curbing spending. The tax cuts are likely to offset somewhat the slowdown, but increased taxes for beer, cars and several other suggested consumer areas, will add to the downward pressures on expectations and demand.
The RBA would be hoping to see much of the tax cuts saved rather than spent, or used to relieve mortgage strains.
And boost from overseas markets will be limited: US investors seem to be waking up to the tough times ahead, aided by continuing commentaries from leading companies.
For example Citigroup, America’s biggest bank by assets, plans to lose that title in the next couple of years by shedding a net $US400 billion in low return assets to improve profits. Thousands of jobs will be going.
America’s biggest insurer by assets, American International Group, is planning to raise $US12.5 billion in new capital after making losses of roughly the same figure in the December and March quarters from insurance deals on financial derivatives that went bad, and continue to go bad.
Circuit City was once a major US electrical and consumer entertainment retailer. It is struggling to survive and is under pressure from shareholders: it put itself on the market on Friday and will probably merge with the fading Blockbuster video and DVD group. Both have been hit by falling demand and changing consumer habits.
And the surge in oil prices past $US126 a barrel, and fading demand for some metals (copper) and a mixed production and stocks estimate on grains, left US markets weaker on Friday.
American sharemarkets fell for the first time in a month with the Dow ending the week down 2.4%; the S&P 500 off 1.8% and the Nasdaq off 1.3%.
That followed a down day and week in Europe where shares fell the most in a month as well.
The Dow Jones Stoxx 600 Index shed 1.4% on Friday and 1.3% over the week.
It is still down 19% from its all time high on June 1.
Indexes in all 18 western European markets except Luxembourg fell. France’s CAC 40 lost 1.9%, Germany’s DAX 1% and the UK’s FTSE 100 slipped 1.1% in the biggest fall for three weeks.
The FTSE 100 index lost 0.2% last week as financial stocks weakened on the news of big losses at AIG.
Crude oil’s rise above $US126 a barrel in New York saw British Airways, Easyjet and Ryan Air all sold off on Friday.
The euro recovered a bit of ground late Friday after hitting an eight week low against the US dollar on Thursday,
Japanese shares fell, ending seven weeks of gains, after a string of major companies, led by Toyota, forecast lower profits in 2008-09 because of slumping domestic demand and falling sales and profits in the US.
The Nikkei lost 2.1% on Friday to be down 2.8% in holiday shortened trading last week.
Hong Kong fell for a third day, driving the main market index to its worst weekly performance in seven weeks.
The Hang Seng Index fell 1.5% on Friday to be off 4.5% over the week, the biggest fall since late March.
But a different story in Australia on Friday as recovering confidence in financial shares saw the index rise 0.8% to hit a three month high for the ASX/200.
Solid interim earnings at the National Australia Bank lifted the market, helped by resource stocks which were firmer on strong commodity prices, especially higher oil prices.
Investors shrugged off the forecast of slow economic growth and higher inflation from the RBA for the rest of 2008.
The ASX 200 index rose 48.6 points to 5771.8, a level not seen since February 5 and the broader All Ordinaries added 43.5 points, or 0.75%, to 5844.4.
For the week the market was up about 1.5% with especially strong days on Thursday and Friday. But after Wall Street’s sharp fall on Friday (120 points on the Dow) the futures market is signalling a flattish start today with the Share Price Index down 11 points.
That was after a 38 point rise in the SPI in Australia on Friday.
