July was a good month for shares, and it looks like trading in August will start today with a modest gain in sight with the ASX futures market up 17 points at the close on Saturday morning.
July though was not so good for oil. Iron ore rose, the Aussie dollar made gains, gold also rose, interest rates were all over the place as bond yields fell, rose and then fell late last week.
The ripples from Brexit faded, although the UK economy is heading for a crunch and the Bank of England will this week reveal its policy response with an interest rate cut expected, and possibly some other measures.
The results from the latest European large bank stress tests were better than expected with only Italy’s Monte Paschi and Allied Irish “failing” the tests in that their capital ratio would fall below 4.5% under stress.
Allied Irish only failed marginally but Monte Paschi would see its capital wiped out. RBS in the UK also had weak capital levels.
Commerzbank and Deutsche Bank in Germany were among the 12 weakest of the banks tested, along with UK rival, Barclays. Spanish banks showed patchy capital levels and a big Austrian bank also had weak capital levels.
The problems at Monte Paschi were no surprise, but its board approved a 5 billion euro recapitlisation plan on Friday night which could see some sort of state help given indirectly. The shares rose 6% for a rare good day on the market lately. That deal was in turn given an OK by the ECB.
Central banks didn’t do much to further expand their easy monetary policy (such as the Bank of England, the RBA, the European central bank and the Bank of Japan, while the Fed changed its interest rate stance to suggest a rise later this year, but was undone by a weak first quarter GDP estimate and big revisions to past quarters.
The focus now shifts to fiscal stimulus with Japanese Prime Minister, Shinzo Abe which is due to announce plans for a ¥28 trillion economic stimulus tomorrow (or over 6% of GDP).
The AMP’s Dr Shane Oliver says “While this is a big number much uncertainty remains around how much is real new stimulus and how many years it will be spread over.”
"It’s doubtful that any of this will be enough to break the stop/start recession pattern and achieve the 2% inflation target, so ultimately some form of helicopter money will be required, but we are not there yet. In the mean-time there is a risk of further Yen strength,” Dr Oliver wrote.
Corporate profits were mixed as the June 30 reporting seasons started around the world – especially in the EU.
But the likes of Amazon, Alphabet, Apple and Google gave heart to US investors, even though weaker than expected figures from major oil groups like Shell, ExxonMobil and Chevron, and a renewed fall in oil prices, hit sentiment.
But July saw strong gains in global shares – US shares were up 3.6%, Eurozone shares, 5.1%, Japanese shares, 6.4% and Chinese shares rose 1.6%.
The AMP’s Dr Shane Oliver says the Australian share market up around 6.3%, its best month since October 2011. That was also the size of the rise in the 12 months to July.
The rebound in the iron ore price (helping Fortescue Metals especially, but also BHP Billiton and Rio Tinto), plus continuing positive leads from the Japanese and US markets helped local investors.
Iron ore prices rose 6.7% in July for the second monthly rise in a row.
But the last week of July was mixed for many markets.
While Australian shares rose 1.2% and Eurozone shares rose 1%, US shares fell 0.1% as oil prices declined, Japanese shares lost 0.4% not helped by the weak easing by the Bank of Japan on Friday and Chinese shares fell 0.7% on the back of the banking regulator increasing measures to reduce financial risks in investment products.
Bond yields also fell, but commodities were mixed with oil down and iron ore up and the $US declined which saw the $A rise to top 76 US cents briefly on Friday night before dipping to close around 75.95 US cents.
July was the fifth monthly rise in a row on Wall Street, for the Dow rose 2.8% and the S&P 500 climbed 3.6%.
But the tech-heavy Nasdaq surged 6.6%, thanks especially to the better results from the likes of Facebook and Amazon.
On Friday night, the S&P 500 index hit an intraday record level at 2,177.13, but closed off the highs. The index rose 3.54 points, or 0.2% to 2,173.60, finishing the week flat.
The Dow slipped 24.11 points, 0.1% to 18,432.24 and posted a 0.8% loss over the week. Nasdaq ended Friday up 7.15 points, or 0.1%, at 5,162.13, posting a 1.2% gain over the week.
The Stoxx Europe 600 rose 0.7% to finish at 341.89, sending it up 0.5% for the week and 3.6% for the month. That marks the best monthly advance since October last year.
