A picture tells a thousand words. How about two pictures? On May 9 the All Ordinaries was up just under 10 per cent from the start of the year. The world sharemarket (MSCI) excluding Australia was also up just under 10 per cent in US dollar terms while the Australian MSCI index in US dollar terms was up around 8 per cent.

But on May 10 the Aussie dollar started dropping, cutting returns on Aussie shares to foreign investors. By May 21 the 2013 gains on the Australian MSCI index in US dollar terms had been cut to just over 3 per cent and then the pressure began to bear on the Australian sharemarket itself.

Currently the Australian All Ordinaries is up just 5 per cent over 2013, around half the gains of the world index (MSCI US dollar index). And the MSCI Australia index in US dollar terms is now down 2.4 per cent over 2013. Foreign investors may need some assurance that the Aussie dollar has stabilised before they are again willing to embrace Aussie shares.

The week ahead

In Australia, there are two key events over the coming week: The Reserve Bank Board meeting on Tuesday and the economic growth data on Wednesday. In the US the spotlight shines strongly on Friday’s employment data (non-farm payrolls). Meanwhile in China key manufacturing data is released on Monday and services sector data on Wednesday.

In Australia, the week kicks off on Monday when the Bureau of Statistics (ABS) releases a publication entitled Business Indicators, containing figures on sales, profits, inventories and sales. While the profits data attracts most attention, the other data is useful in gauging the health of the broader economy.

Also on Monday TD Securities and the Melbourne Institute release the monthly inflation gauge for May. There are no signs of inflationary pressures at present. And the ABS releases data on retail spending. We tip flat growth in the month. The Performance of Manufacturing survey is also issued.

On Tuesday the Reserve Bank Board hands down its latest monetary policy decision. While the RBA sprung a surprise in May, the weaker Aussie dollar should mean that another rate cut isn’t up for debate. At least not anytime soon.

Also on Tuesday the current account data for the March quarter is issued with plenty of interest in the extent to which net exports (exports less imports) boosted economic growth in the quarter.

On Wednesday the ABS issues March quarter data on gross domestic product (GDP) economic growth data. On current indications the economy recorded very strong growth of around 1.1 per cent in the quarter, keeping annual economic growth around 3 per cent, or just below longer-term averages.

Also on Wednesday the Performance of Services gauge is released.

And on Thursday the monthly trade figures are issued. In recent months small surpluses are re-appeared, suggesting Australia is again paying for itself in the world.

In the US, the week kicks off on Monday with the ISM manufacturing gauge, alongside new figures on construction spending. While economists tip an easing in the ISM gauge to 50.5, it will still be in expansion territory – above the 50 line that separates expansion from contraction. The April data on construction spending is released the same day together with automobile car sales.

On Tuesday trade figures are released together with the customary weekly reports on department store sales.

On Wednesday the usual weekly data on housing finance activity is released alongside the ADP employment index, factory orders and productivity figures and the ISM Services index. The Federal Reserve also issues its Beige Book – or summary of conditions across the Fed district banks.

On Thursday the weekly data on jobless claims is issued together with the Challenger job layoff series.

And on Friday in the US, the pivotal non-farm payrolls or employment data is released. If the Federal Reserve is to wind back monetary stimulus it will need to see proof that the job market is improving. Economists tip 165,000 jobs created in May and 7.5 per cent unemployment – not enough for the Fed to get too excited. And that would mean bond purchases are maintained and investors take a less positive view on the US dollar.

In China, the official manufacturing gauge is released on June 1 followed by the HSBC measure on Monday and the Services gauge on Wednesday.

Sharemarket, interest rates, currencies & commodities

Commonwealth Bank Group currency strategists have revised down their forecasts for the Aussie dollar. Now they expect the Aussie dollar to stand at US95 cents in September this year, down from earlier forecasts of US104 cents. The key reasons? A stronger US dollar and lower terms of trade (ratio of export prices to import prices).

Over the coming year to June 2014 the Aussie is expected to hold between US92-104 cents, with the central forecasts being US95-96 cents. From there the Aussie is seen at US93 cents by September 2014 and US91 cents by June 2014.

The Aussie is also expected to ease from around 75 euro cents in September to 73 euro cents in June 2014. And the Aussie is expected to hold between 65-66 pence over the same period. However the Aussie is expected to lose ground against the Kiwi from NZ$1.19 to NZ1.17 in December 2013 and to NZ$1.15 in September 2014.

Certainly the US economy is strengthening, underpinned by a recovery in the US housing market and firmer exports. While the Government will need to wind back the budget deficit and high debt levels, the US economy is still expected to outperform other major advanced nations.

And clearly if the economy continues to lift, the Federal Reserve won’t need to keep stimulating the economy by purchasing assets in exchange for cash. Our strategists expect the Fed to taper its asset purchases in December 2012 and end them in March 2014. The Federal Reserve is tipped to lift the Fed funds rate at the end of 2014.

Upcoming economic and financial market events


  • June 3 - Monthly inflation gauge (May) - Inflation is under control
  • June 3 - Business indicators (March quarter) - Covers profits, sales, inventories and wages
  • June 3 - Retail trade (April) - Fell 0.4 per cent in March after strong gains in January & February
  • June 4 - Reserve Bank Board meeting - The lower Aussie dollar means rates don’t need to be cut
  • June 5 - Economic growth (March quarter) - Solid growth of around 1.1 per cent is tipped
  • June 6 - International trade (April) - Small surpluses have returned


  • June 3 - US ISM manufacturing (May) - Economists expect a modest easing from 50.7 to 50.5
  • June 4 - US International trade (May) - A US$40 billion deficit is expected
  • June 5 - US ADP employment (May) - Gives a guide to non-farm payrolls data
  • June 5 - US Beige Book - A summary of conditions across the Federal Reserve districts
  • June 5 - US ISM services (May) - A modest lift from 53.1 to 53.3 is tipped
  • June 7 - US Non-farm payrolls (May) - Economists tip 165,000 job gains; unemployment at 7.5 per cent