Subdued iron ore prices are likely to take some of the gloss off Australian economic growth. Photo by Reuters.
International equity markets continue to surprise, with
strong gains in the United States after positive economic
Forsyth Barr broker Peter Young said it was a good time for
investors to ''go global''.
Improving economic data and company fundamentals were the
core supports for his positive view on international stocks.
''Growth stocks have been out of fashion for the last few
months but should perform well in the coming phase of
The European Central bank cut its main lending rate from
0.25% to 0.15% and the deposit rate from zero to -0.1%, the
first major central bank to introduce negative interest rates
as a way of encouraging banks to lend money.
Mr Young said the ECB had probably delivered as much as it
could, at this point.
President Mario Draghi said the central bank was not finished
and was ready to ease more if necessary.
''Interesting, too, were the comments the lower boundary in
interest rates had been reached and quantitative easing is
still on the table.
"Apart from an unchanged ECB policy rate outlook, this
suggests if this package won't fix the inflation problem,
quantitative easing will become the tool of choice.''
Craigs Investment Partners broker Chris Timms said markets
continued to push higher and prove the more cautious
commentators and analysts wrong.
A combination of supportive central banking policies, steady
economic data and a lack of investment alternatives had seen
the theme of a steady upward grind continue over recent
Volatility had also been low, he said.
The VIX, a closely followed index measuring market
volatility, hit its lowest level since February 2007 on
Friday. The VIX finished the week at 10.73, down 22% from
where it began the year.
''This very low level of volatility is one of the reasons
some commentators are suggesting the market may have got just
a little too complacent.''
Nine out of 10 Standard and Poor's 500 sectors rose last week
with financials (up 2.3%) and industrials (up 2.2%) the
In the US, the May payroll was slightly below expectations
but good enough to suggest employment growth was continuing.
The headline number of 217,000 new jobs was below the 235,000
consensus estimate and down on last month's revised 282,000.
The three-month moving average was now 234,000 compared with
236,000 previously, suggesting employment growth was stable,
if not outstanding, Mr Timms said.
Across the Tasman, first quarter GDP growth in Australia was
3.5% on an annual basis, ahead of expectations of 3.2% and
2.8% in the previous quarter.
March quarter growth was 1.1%, ahead of a forecast of 0.9%
and growth of 0.8% in December.
''This is the fastest pace of growth in almost two years and
while it is encouraging, the Australian economy is likely to
slow over the next few quarters and the economy remains
challenged for many sectors.''
Iron ore prices remained subdued, mining investment was
showing no signs of growth and the recent Budget would keep
consumer sentiment weak in the short term.
The Australian Budget meant tax rises, healthcare spending
cut, pension eligibility tightened and 16,500 public sector
jobs cut, he said. It was hard to see consumer spending
growing against that backdrop.
What to look for this week
Thursday: One more rate rise from Reserve Bank and
then a pause. Market expectations for official cash rate to
rise to 3.25%. The major piece of data this week in Australia
will be unemployment and labour force numbers for May. Market
looking for job growth of 19,800, higher than the 14,200 in
April, and for unemployment rate to rise slightly to 5.9%.
In the UK, May employment is due early Thursday morning (NZ
time), with markets expecting no change in the 6.8%
unemployment rate from April.
Friday: US retail sales numbers due; markets expecting
headline month-on-month rise of 0.5%, better than last
Local markets will have closed by the time China releases
industrial production, retail sales and fixed asset
investment for May. Markets expecting across-the-board
improvement from April.
Three reasons to buy international stocks
• There is further growth to come in key economies. Monetary
policy is still accommodative and was loosened further in
Europe last week. This should support the return to growth in
the European region. United States growth indicators continue
• Equities remain fairly valued. Equity prices still provide
good value for risk and have room to move higher as rising
demand drives stronger revenue growth and earnings upgrades.
• The New Zealand dollar is providing an opportune time to
invest in high quality international companies and trusts,
trading near its highs and well above its longer-term