AU200/AUD

The Aussie 200 (ASX SPI 200), which accounts for 81% of Australia’s stock market, remained highly volatile through the fourth quarter. Although the index ended October lower, it maintained an uptrend over the next couple of months, breaching the 6,700 mark for the first time since the covid-19 outbreak. Tech and commodity stocks were the biggest gainers in 2020, with stocks like Afterpay, Fortescue Metals Group and Mineral Resources recording triple-digit growth, and OZ Minerals and Lynas Rare EARTHS delivering high double-digit growth.

The Aussie 200 remains below the pre-pandemic levels, lending it upside as global economies emerge from the pandemic-crisis in 2021.

As widely expected, the Reserve Bank of Australia maintained its cash rate at a record low level of 0.1% at its recent meeting, after lowering it from 0.25% in November. The board indicated that it plans to keep rates unchanged for at least three years, while reaffirming its commitment to support jobs and businesses in the country.

The IHS Markit manufacturing PMI climbed for the sixth consecutive month, to 56 in December, from 55.8 in November. The latest reading was also the strongest since July amid new orders climbing to a 25-month high. The index is projected to decline slightly to 55.1 in January.

Retail sales unexpectedly climbed 7% in November, versus the consensus estimate of a 0.6% decline. This followed 1.4% growth in October. The latest reading marked the sharpest growth in retail sales since May, driven by the reopening of retail outlets in Victoria. The final reading for November is expected to remain the same.

National Australia Bank's index of business confidence climbed to 12 in November, from a reading of 3 in October. The recent data came in above the average for the index, rising to pre-covid-19 levels, following a strong recovery in the economy. Sentiment improved in most industries, with the exception of mining and construction.

Australia's trade surplus widened to A$7.46 billion in October, from $5.82 billion in September. The latest reading marked the highest surplus since April, due to an improvement in worldwide demand.

Consumer prices rose by 0.7% year-over-year in the third quarter, following a 0.3% decline in the prior period. Prices were boosted by the reopening of the economy. The yearly inflation rate is expected to rise to 0.8% in the fourth quarter.

Given the steep rise in the fourth quarter, the index may witness some profit taking in early 2021. The Aussie 200 may be supported by the rollout of covid-19 vaccines, growth in the Chinese economy and the performance of the commodity market.