THE WEEK AHEAD: Did GDP go backwards last quarter?

The year is fast drawing to a close, so it’s worth checking how the sharemarket and Aussie dollar have performed on a global basis over 2009.

Certainly the Aussie dollar has had a roller-coaster ride, falling to as low as US62.45 cents early this year and rebounding to US94.05 cents in mid-November. Actually on the charts, it looks more like the Aussie has had a bungy jump over the last 18 months.

However when assessed against 120 currencies across the globe, the true strength of the Aussie dollar stands out. Over 2009 the Aussie dollar is currently the third strongest when measured against the US dollar. The Seychelles rupee is in top spot, up 33% against the greenback after being floated a year ago. And in second spot is the Brazilian real, up 24%. The Aussie dollar has gained 23% (measured in terms of Aussie dollars per greenback rather than the other way around) followed by fellow commodity-currencies, the Chilean peso, South African rand and the NZ dollar.

Over 2009, 58 currencies have risen against the greenback, 30 currencies are largely unchanged while 32 currencies have weakened. Of the major currencies the Euro has gained 5% against the greenback over 2009 while the Japanese yen has lifted 3%.

Across global sharemarkets, Australia is likely to finish in the middle of the pack in 2009 just as it did the previous year. Currently the All Ordinaries is up 27%, putting Australia in 42nd spot of the 72 bourses monitored by CommSec. Asian nations have generally done best while Australia has out-performed most European and North American markets.

The best performing sharemarket so far this year has been Russia, with the IRTS index up 113%. Sri Lanka, Argentina, Ukraine and Peru are also among the top performers. Interestingly, Russia and the Ukraine were among the worst performers in 2008.

Only 10 of the 72 sharemarkets have eased in 2009 with last year’s best performer – Ghana – currently the worst performer, down 48%.

In terms of interest rates, Australia is ending 2009 with the highest interest rates of any advanced nation. Three month interest rates in Australia stand at 4.12%, followed by New Zealand at 3.50%, South Korea at 2.79% and Norway at 2.04%. Of 56 nations across the globe Australian interest rates are 16th highest.

The week ahead

One indicator stands out above all others in the coming week – the latest National Accounts data, containing the economic growth estimates. Admittedly the National Accounts is a backward-looking document. But many investors want to be comforted with the knowledge that the economy has notched up another quarter of growth before heading off to the Christmas break.

Unfortunately it is far from certain that the economy did grow in the quarter. The key spending components pulled in opposite directions over the September quarter, especially inventories and net exports (exports less imports). Overall, we believe the economy posted modest growth of around 0.3%. But even if the economy did go backwards slightly, the indications are that growth will rebound this quarter and pick up pace through 2010, underpinned by housing and engineering construction. The National Accounts are released on Wednesday.

If there was prize for second place in the coming week, it probably would be handed to the Reserve Bank for the publication of minutes for the last Board meeting. The Board minutes will be released on Tuesday and analysts will especially be watching for indications that members were contemplating a pause from rate hikes at the last meeting.

Other indicators to watch over the week include lending finance on Monday, with government finance and dwelling commencements on Tuesday. The lending figures cover commercial, personal and lease categories as well as the housing data that has already been released. There are signs that consumers are starting to borrow again, although most businesses are still in the process of trimming exposures. But a far stronger reading is expected on dwelling commencements with starts possibly up 14% in the September quarter.

The Reserve Bank Deputy Governor, Ric Battelino, delivers a speech on Wednesday while imports and the Reserve Bank Bulletin are both released on Thursday.

In the US the key indicators are all huddled in the middle of the coming week. On Tuesday, data on producer prices and industrial production are released, together with figures on capital flows and the regional Empire State index. On Wednesday the Federal Reserve announces its rates decision (4.15am AEST Thursday) while data on consumer prices and housing starts are released. And on Thursday, the leading index and influential Philadelphia Fed index are issued.

Fortunately for investors there are no scheduled speeches from Federal Reserve officials for the remainder of 2009. The next key address is a speech from Federal Reserve chairman Ben Bernanke on January 3.

Sharemarket

The bond market enjoyed its time in the sunshine in 2008 with returns out-performing shares for the first time in six years. But the tables have turned in 2009. Total returns on shares have lifted by 32% so far in 2009 while the bond accumulation index has fallen by 2%.

While there is still just over a fortnight until the end of the year, it is already clear that retailing has been the strongest sector on the Australian sharemarket in 2009. The Retailing index has lifted by 88% in 2009, ahead of banks and consumer durables and apparel, both up 47%. Four of the 20 sectors again went backwards in 2009, led by pharmaceuticals and biotech, down 10%, and followed by defensive sectors, telecom and utilities as well as real estate. Small companies out-performed with the Small Ordinaries up 44%, compared with a 24% lift in the ASX 50 index.

Interest rates

Plenty of water will flow under the bridge over the next two months before the Reserve Bank next meets to decide interest rate settings. Financial market pricing suggests a rate hike in February is a 50:50 proposition, which is entirely appropriate. While parts of the economy like construction will do well in 2010, exporters and tourism will continue to do it tough. And then there is the uncertainty about what businesses will do with the government’s tax break no longer in operation. CommSec expects the cash rate to lift to around 4.25% around mid-2010, but the timing of the rate hikes is still an open question.

Currencies & commodities

The past year will be best known for the GFC, but 2009 will also go down as the year of the rebound. Equity and commodity prices fell sharply in the first two months of the year, together with the Aussie dollar, but then settled and ratcheted higher. The CRB futures commodity index is currently up 16% over 2009 after sliding by 36% over 2008.

Across commodities, base metals have recorded the strongest gains over 2009 with copper up 126%, lead up 121% and zinc up 93%. Crude oil prices have lifted 66% over 2009 despite easing 13% over the past month or so. And gold is up 32%, again despite an early bout of end-year profit taking.

But rural prices have been more mixed. Sugar has lifted 89% and cotton has gained 32%. While wool is up 50% in US dollar terms, it is only up 13% in Aussie dollar terms. And wheat prices have actually eased by 14% in 2009.

Craig James is chief economist at CommSec.