While virtually all the bad news last week came out of the US, the Australian stock market seemed to have its seatbelt firmly fastened aboard the same rollercoaster.

Fears of a double dip recession exploded in the US, and it continues to be the case that whatever happens there on overnight markets is repeated here. In fact, this year has seen the correlation between the US S&P 500 and the ASX 200 indexes get even tighter. This has some experts puzzled given the two-speed global economy that is being identified, with the Aussie economy more leveraged to the strength of the Asian economy than the developed economies.

The ASX 200 finished the week down 1.4%, with resource stocks (-1.9%) and financials (-1.5%) getting hit. In a sign of increased risk aversion, the money was being shifted towards the consumer staples sector, up 0.7% for the week.

While virtually all the bad news last week came out of the US, the Australian stock market seemed to have its seatbelt firmly fastened aboard the same rollercoaster.

Fears of a double dip recession exploded in the US, and it continues to be the case that whatever happens there on overnight markets is repeated here. In fact, this year has seen the correlation between the US S&P 500 and the ASX 200 indexes get even tighter. This has some experts puzzled given the two-speed global economy that is being identified, with the Aussie economy more leveraged to the strength of the Asian economy than the developed economies.

The ASX 200 finished the week down 1.4%, with resource stocks (-1.9%) and financials (-1.5%) getting hit. In a sign of increased risk aversion, the money was being shifted towards the consumer staples sector, up 0.7% for the week.

Equity markets
Doubts over the sustainability of an economic recovery grew over the course of last week, as investors rushed for the safety of the sidelines. If it wasn’t for a rebound on Friday following Fed Chairman Ben Bernanke’s soothing comments, the result would have been worse. In the end, the S&P 500 index was down 0.7% and the Nasdaq down 1.2% over the week.

There are a couple of interesting market trends developing that highlight the fear being felt by investors. The first 16 trading days in August on the S&P 500 index saw daily trading volume at its lowest average since 1999, highlighting that either a lot of investors were away on holiday or they are simply fleeing the stock market.

The second piece of evidence points towards the latter as the reason for lower stock market volumes, with huge inflows being reported into bond funds. Amazingly, the amount of money flowing into the relative safety of bond funds is poised to exceed the cash that went into stocks during the tech bubble.

The positive sentiments from Chairman Bernanke on Friday are sure to temper the downward momentum, however what impact he has will be interesting to follow this week.

Commodities
BHP Billiton released its full-year profit numbers last week, indicating continued optimism around long-term commodity prices. Over the short term though, iron ore and coking coal prices are expected to ease. Both these markets have been transformed this year with the move from annual benchmark pricing to quarterly benchmark pricing. It is predicted that fourth quarter prices are to drop in the vicinity of 8-12% for both these commodities.

Traditional safe haven asset, gold, gained 0.8% over the week and oil prices (+1.8%) turned positive following Bernanke’s speech on Friday.

Currencies
The US1¢ drop in the Australian dollar at the start of last week following the hung Parliament result in the Federal election was the extent of the damage done to the dollar. The dollar ended the week at US$0.8870 on Friday.

This morning’s trade has seen a modest increase in the AUD/USD to above US$0.9000 after Chairman Bernanke hinted at re-starting a quantitative easing (QE) policy. Close attention will be on any further developments here. The last time the US Fed announced QE on 18 March 2009, the AUD/USD jumped by more than 5%.

Index	Close last Friday	% weekly movement	% yearly movement
ASX 200	4,370	-1.4%	-2.7%
Dow Jones	10,151	-0.6%	+6.4%
S&P 500	1,065	-0.7%	+3.5%
Nasdaq	2,154	-1.2%	+6.2%
FTSE	5,202	+0.1%	+6.0%
DAX	5,951	-0.9%	+7.9%
CAC 40	3,507	-0.5%	-5.0%
Nikkei	8,991	-2.0%	-14.6%
Shanghai	2,611	-1.2%	-8.7%
Hang Seng	20,597	-1.8%	+2.5%

In Australia, the market returned -1.3 per cent, with defensive sectors the hardest hit. Resources stocks struggled prior to the release of the findings of the Henry Tax review, as the market speculated on the negative impact that this report would have on the sector. The Healthcare sector was negatively impacted by the poor results of one of CSL’s overseas competitors, whilst Woolworth’s sales results dampened the returns for the Consumer Staples sector. Telecommunications was the only sector to post positive returns, driven by the performance of Telstra, as the market priced in the expectation of a national broadband network deal with the Government occurring in the short term. Merger and acquisition activity continued to occur in the Mining and Resources sectors, but was also at play in the Consumer Staples, Financials and Energy sectors.

Global shares markets were weak, returning -1.3 per cent, however another good month for the Australian dollar saw hedged investors return a positive 0.7 per cent for the month. It was no surprise that European markets drove the negative performance, whilst returns in China, Thailand and Japan were also negative. At a sector level, Healthcare, Telecommunications and Consumer Staples stocks underperformed, whilst the Consumer Discretionary, Industrials and Information Technology sectors outperformed. Emerging Markets continued to outperform Developed markets but returns were diverse, ranging from -6.6 per cent in Israel to as high as 10.0 per cent in Egypt.

Amidst falling local and global share markets, the property sector provided some relief for investors. Local listed property rebounded 3.9 per cent over the month, whilst Global unlisted property continued its recent upward trajectory by gaining 0.5 per cent through April.

Global bond markets outperformed Australian bond markets, in a month that saw domestic bond markets return to positive territory. Overseas markets performed better as bond yields rallied, with credit benefiting from high running yields, along with some limited spread contraction.

Market returns reflected concerns over European sovereign debt issues, particularly in Greece...

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