The RBA held its latest monthly meeting today, deciding to keep rates on hold at 3%. The decision was widely expected by the market, with the market pricing in a 94% chance that the RBA would hold fire this month.

The RBA cited decreasing global risks, ‘robustly’ stabilisation in China and under-control inflation as among the reasons behind today’s decision and they are clearly in no rush to lower rates.

While today’s decision was pretty much a fait accompli and the RBA is reasonably happy with rates where they are, the market is still expecting the next move to be to the downside.

The RBA itself has said that it has room to cut rates further ‘if needed’. However the RBA also has faith that the cuts it has already made (cuts totalling 1.75% since late 2011) are more than enough to keep the local economy bubbling along.

But while there were some hopes we could see the RBA Target Cash Rate as low as 2% this year, the chances of a string of further cuts is looking increasingly unlikely.

While the Australian economy is not exactly shooting the lights out, there are at least some signs of strength visible. And that is enough for now to convince the RBA not to announce further cuts. Don’t forget, Australian interest rates are at their lowest since the 1950s and the RBA is going to have to see a stack of bad news before it slashes rates further.

The RBA looks at a raft of economic indicators to help it makes up its mind on appropriate interest rate levels; including such things as inflation rates, unemployment levels, retail spending data, terms of trade (Australia’s exports vs imports) and the Aussie dollar.

Let’s take a look at a few of these to see what they say about the economy and the chance of seeing future rate cuts. Firstly, let’s look at the unemployment rate. The chart below shows the unemployment rate tracked monthly over the last five years.

While unemployment is obviously much higher than where it was at the start of the GFC, the latest reading of 5.4% is still considered quite a positive result (and much better than most industrialised nations). Crucially, the last month saw unemployment tick lower with an impressive 71,500 jobs added during February – well ahead of the market’s expectations of 9,500 jobs.

Next, we will look at Retail Sales. The RBA pays a lot of attention to this as it does a great job of summarising households’ wealth, confidence and spending levels. It is a great indicator of whether consumers need stimulating or not.

The chart is quite choppy, and it can be quite hard to get a read on the direction of the trend. However, like the unemployment data the Retail Sales figures painted a particularly positive – if one-off – reading last month. Retail sales growth of 0.9% was the strongest reading since the middle of last year and came on the heels of months of seeing retail spending actually shrink across the country.

Now both of those charts show some recent positive readings amid generally middling trends. So why doesn’t the RBA just keep cutting rates? What do they have to fear? The answer is inflation. The RBA is worried that if they cut rates too far or too quickly, then inflation (prices of goods and services going up) will run out of control. And keeping inflation under control – ideally between 2% and 3% – is one of the RBA’s key goals.

The chart above shows inflation on a quarterly basis over the last 10 years. You can see that current levels are some of the lowest seen in the last decade and the last reading of 2.2% is well comfortably within the 3% limit that the RBA aims for. The RBA today acknowledged that inflation is consistent with its medium-term targets.

So where to from here?

The recent RBA rhetoric has clearly been painting a picture that the RBA is not going to cut rates further unless things go to hell in a hand basket. Short of a major global financial shock and/or a sudden and sharp deterioration in the local economy we don’t see any more cuts in the coming months.

The RBA thinks its previous cuts are doing the job intended and won’t cut further until they see proof otherwise.

Looking at the bond futures markets, we can see that the financial markets are currently pricing in rates to be at 2.77% by the end of 2013. So according to the market’s current thinking, at best expect to see one more rate cut by December. And the chances of rate cuts (according to the market) are falling every day. Late last year, the market was expecting rates to be down to 2.35% by the end of the year!

So you can see that with rates back to record lows, the days of hoping for a series of more rate cuts (at least by mortgage holders, not retirees/savers) are clearly over. The only thing that will see rates down to near 2% is some kind of economic meltdown. And that’s something that nobody is cheering for.

This editorial was published to our Investors report Tuesday 2nd April – Access the investors report FREE for 7 days

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Beware Picking Bottoms

The market is up around 17% in the last three months and to many investors the better performing stocks now look to expensive to buy. These investors who are too scared to buy a stock in an uptrend (stocks with rising prices) instead want to buy stocks that have fallen, hoping to ‘pick the bottom’.

Most investors find it hard to resist buying a stock after it has suffered a large fall. This is natural, because we ground our concept of “value” according to price.

If we see a stock fall from $10 to $5, we, at some level, still view it as a $10 stock. Thus, the temptation is to buy a stock that has recently fallen, because some part of us believes (or hopes) that it will naturally gravitate back to its previous level.

To traders considering trying to pick the bottom, I would strongly caution against fighting the market by buying stocks on their way down.

It’s the pyschology, stupid

Psychology is the crux of trading of the markets. Not only does psychology rule the way markets operate, but your personal psychology will rule the way you trade.

Greed and fear are the two biggest emotions behind traders’ behaviour and therefore are major influences on the market.

The legendary trading psychologist, Brett Steenbarger, says that fear begets fear. For this reason, he says, bear markets are shorter than bull markets, and falls in share prices are likely to be quicker and sharper than the earlier gains. This explains the common market cliché “up by the stairs, down by the elevator” – prices will generally creep higher but will usually slump at a faster pace.

Fear in market, fear for yourself

The market, made up entirely of humans, reflects all the emotions of the humans. For this reason, Steenbarger says, the market doesn’t instantly swing from pessimism to optimism. Just like most humans, the market’s mood improves gradually, not instantly. Rather, the signs of improvement in the market’s attitude toward a stock can be identified by savvy traders.

Now I am no Behavioural Science expert, but I do utilise technical analysis – which is a trader’s best friend in interpreting the market’s mood.

In technical analysis, these gradual mood changes can often be identified by various signs of divergence. For example, new lows might be made on falling volume, or the price might fall as the relative strength indicator improves. In both cases, the market is showing you that the full-on bearishness of the past is starting to ease.

Fear of bottom picking

So, what does this have to do with bottom picking? Fear, both your own and the market’s, is closely tied to the way we treat stocks when they fall lower.

The fear of missing out on an ‘easy’ trade might cause you to take a position in a falling stock too early. So, how do you avoid pulling the trigger too early? Look closely at the market’s behaviour: is technical divergence indicating the selling is easing?

Bottom picking is usually an unpleasant habit. But if you can watch the market, and identify when bearishness is in decline, you can be prepared to take a position when the price starts moving in the right direction. The technical signs of divergence should tell you to get ready, but the price action should tell you when to go. Once again, patience, and control of your emotions, is key to successful trading.

Carl Capolingua
Head of Education
Australian Stock Report
Follow Carl on Twitter @CarlCapolingua

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Aussie shares had a difficult week last week, as a raft of disappointing earnings results drove the market lower.

The ASX 200 dropped 48 points (-1.1%), to close the week at 4197.

Four out of twelve sectors finished in positive territory; however the two largest sectors, materials and financials, were the hardest hit.

Three of the big four banks reported during the week.

CBA fell 0.4%, after it reported a 1Q FY12 cash profit of $3.58 billion, a 7% rise compared to the year earlier. The result was slightly ahead of analyst expectations.

ANZ put on 0.6%, following a 4.8% rise in quarterly cash profit to $1.48 billion. The result was also ahead of analyst expectations.

Rival Westpac dropped 3.4% after its 1Q FY12 cash profit was 1.5 billion, a 3.3% fall from the prior corresponding period.  That result missed analyst expectations.

The major miners were the biggest drag on the market last week as a majority of commodities fell sharply.

BHP and Rio Tinto lost 3% and 4.9% respectively. Iron ore rival Fortescue defied the trend, gaining 1% amid takeover rumours.

The energy sector was weaker during the week despite stronger oil prices. Woodside dropped 1.3% while rival Santos let go of 2.4% as it revealed its FY11 underlying net profit missed expectations.

The major retailers were mixed; David Jones (-1.6%) and JB Hi-fi (-6.3%) lost ground, while Myer (+2.5%) climbed higher.

Billabong soared 41.6% following an offer from TPG of $3.00 a share, a 68% premium to the close before the offer.

Supermarket giant Woolworths defied the weaker market by putting on 1.7%.

Economic News: What Does it Mean?

There was a plethora of economic data released last week. The key ones were consumer sentiment, business confidence, home loan approvals and Jobs data.

Consumer sentiment rose 4.2% in January, after a 2.4 % rise in December. The RBA’s two rate cuts late last year were acknowledged as having an impact on the positive number, although the index is still 5.2% below where it was a year ago.

Business confidence was higher in the month of January according to the NAB Business Confidence Survey.

According to the survey, the Business Confidence Index rose to +4 in the month, after a +3 reading in December. This is still below the long-run average of +6.

The business conditions index increased to +2, after a flat reading the previous month.

The ABS revealed that home loans approved in December rose 2.3% compared to market expectations of a 1.8% gain.

The increase in home loan approvals makes it six months in a row that there has been an increase, likely spurred by diminished prospects of an RBA rate hike.

Employment data revealed the jobless rate fell to 5.1% in January. Economists were expecting the rate to rise to 5.3%.

The total number of people employed jumped by 46,300 in December, which was way higher than economist expectations of a 10,500 net gain.

The result was driven by an increase in part-time employment of 34,000 people, and an increase in full-time employment of 12,300 people.

The result also decreases the likelihood of a rate cut in March by the RBA.

In the coming week the major news will be February’s RBA minutes meeting, which is slated for release on Tuesday 11:30 am, AEDT.

Overseas Market and Commodity Wrap:

International markets finished in positive territory, as hopes mount that eurozone finance ministers will allow Greece to receive the 130 billion euro bailout package it needs to avoid a default.

European stock rallied despite early week jitters that were sparked by Moody’s downgrading the credit rating of six European nations and placing the outlook of another three on negative watch

Among the key European indices, the UK FTSE (+0.9%), the German DAX (+2.3%) and the French CAC (+2%) all gained ground.

In the US, data showed that weekly jobless claims fell 13,000 to a seasonally adjusted 348,000, its lowest level in almost four years.

The major US markets were all stronger, the Dow (+1.2%), Nasdaq (+1.7%) and S&P 500 (+1.4%) climbed higher on the week.

The larger Asian markets surged higher, with Nikkei (+4.9%) and Hang Seng (+3.4%) both extending the previous week’s rally.

Most commodities price dropped sharply; zinc (-6.4%) and nickel (-5.2%) were among the worst performers.

Gold advanced 0.5% while oil strengthened 3.8% on the back of Middle East supply concerns.

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The Australian market closed in the red last week, as the Greece debt talks stalled and our major miners weakened.

The ASX 200 lost six points (-0.1%) to close the week at 4245.

Most sectors closed in positive territory for the week; however the largest two (materials and financials) weighed heavily on the market.

The banking majors were mixed, with NAB (ASX:NAB) recording a 3.4% loss after its disappointing first quarter trading update.

Big four rivals ANZ (ASX:ANZ) (+1.5%) and Westpac (+0.3%) both recorded gains and also announced they would increase their variable interest rates by six, and ten, basis points respectively.

Mining majors struggled on the back of weaker commodities and worse-than-expected earnings from some of the bigger companies.  BHP (ASX:BHP) dropped 3.5% Rio Tinto (ASX:RIO) slipped 0.8%, with both reporting a fall in profit.

The energy sector performed well during the week, helped by stronger oil prices. Santos advanced 1.5%, while rival Woodside jumped 3.8%.

The major retailers were weaker, hurt by the higher Aussie dollar. JB Hi-Fi (-2.8%), Myer (-6.1%) and David Jones (-1.2%) all recorded losses.

Supermarket giant Woolworth benefited from its defensive status, ending the week with a 0.2% gain.

Economic News: What Does it Mean?

There was a plethora of economic data releases last week.  The key ones were retail sales, ANZ’s Job Advertisement Survey, the RBA’s interest rate decision and its quarterly Monetary Policy Statement.

December retail sales fell 0.1%, against expectations of a rise of 0.2%. The disappointing result revealed the RBA’s December rate cut had little effect on sales.

ANZ’s Job Advertisements Survey showed the number of advertisements in December shooting up 6% from the prior month.

The total number of job advertisements was 0.7% higher than the same time 12 months ago.

The RBA shocked a majority of economists by leaving the official cash rate on hold at 4.25%.  Expectations were for a 25 basis point cut.

RBA governor Glenn Stevens said “with growth expected to be close to trend and inflation close to target, the Board judged that the setting of monetary policy was appropriate for the moment.”

Mr Stevens also said that while financial market sentiment remains skittish, it generally has improved since the last meeting in December.

The statement by Mr Stevens did offer some hope for a rate cut down the track if demand conditions weaken materially.

Friday saw the RBA release its quarterly Monetary Policy Statement, in which it lowered its underlying inflation expectation by 25 basis points to 2.25% for the year to end of June.

The central bank also lowered its GDP growth forecast in the year to June from 4%, to 3.5%.

The RBA said that growth outside the mining sector is expected to remain below trend over the forecast period.

In the week ahead the major news out is January’s jobs report, which is slated for release on Thursday 11:30 am, AEDT.

Overseas Market and Commodity Wrap:

The European and US majors finished in negative territory, as investors became increasingly alarmed that a Greek debt deal would not be complete in time to avoid a disorderly default.

On the economic front, US jobless claims fell by 15,000 to 358,000 last week – against expectations of a rise and signalled the ongoing improvement in the labour market.

Despite the positive data, US markets were weaker; the Dow (-0.5%), Nasdaq (-0.1%) and S&P 500 (-0.2%) all recorded losses.

It was a relatively quiet weak on the economic front for Europe, with the region on edge regarding a debt swap deal for Greece.

Among the key European indices, the UK FTSE (-0.8%), the German DAX (-1.1%) and the French CAC (-1.6%) all were weaker.

The larger Asian markets defied the negative trend, with Nikkei (+1.3%) and Hang Seng (+0.1%) both strengthening.

Economic news out of China showed inflation rising 4.5% on an annualised basis last month.

The CPI reading came in 0.5% above expectations and disappointed investors hoping for new stimulus measures from Chinese authorities.

Higher Chinese inflation could mean that monetary policy will remain tight, thus hurting commodity demand. On the back of this most commodities declined, with lead (-4%) and zinc (-3.6%) being two of the worst performers.

Gold fell 0.9%, while oil was 0.9% stronger amid concerns of more unrest in the Middle East.

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The Australian sharemarket lost ground last week as a strong Aussie dollar hurt many companies with overseas earnings.

The ASX 200 edged lower 37 points (-0.9%) to close the week at 4251 – giving back some of the previous week’s gains.

Sectors were more or less weaker during the week with IT, telco and consumer discretionary the only ones finish in front.

The banking majors weighed on the market; NAB (ASX:NAB) lost 1.4%, whilst Westpac dropped 2.4%. During the week CEO Gail Kelly stressed that funding costs were higher now than any time during the GFC.

The big miners were mixed as were commodity prices; Rio Tinto (ASX:RIO) rose 1%, BHP (ASX:BHP) declined 0.2% and rival Fortescue put on 0.2%.

Energy stocks were varied; Santos (ASX:STO) advanced 1.5%, while competitor Woodside shed 1.1%.

Wesfarmers and Woolworths both reported solid quarterly sales growth for the December quarter, however both declined, losing 2.8% and 1.5% respectively for the week.

The solid sales growth by the supermarket giants translated into gains for the retailers.  JB Hi-Fi (+6.7%), Myer (+4.4%) and David Jones (+6.8%) all performed strongly.

Economic News: What Does it Mean?

In economic news home sales, trade balance, and the NAB Business Confidence Survey were released last week.

New home sales fell by 4.9% in the month of December, with successive rate cuts by the RBA failing to have the desired impact.

Figures released by the ABS showed that the trade surplus increased by $336 million in January from December, which exceeded economists’ forecasts.

The surplus last month was a seasonally adjusted $1.7 billion compared to a forecast $1.2 billion.

Imports were up 1% for the period, whilst exports rose 2%.

Business confidence was higher in the month of December according to the NAB Business Confidence Survey.

According to the survey, the Business Confidence Index rose to +3 for the month, after a +2 reading in November.

The Business Conditions Index stayed steady at +1.

In the week ahead, all eyes will be on the RBA for its cash rate decision on Tuesday. The market is pricing in a roughly 60% chance of a rate cut.

Overseas Market and Commodity Wrap:

International markets strengthened last week amid encouraging economic data out of the US.

The US Labor Department said employers added 243,000 jobs in January after an increase of 203,000 positions in the previous month.

The median forecast of 89 economists in a Bloomberg survey was for an increase of 140,000 jobs. The jobless rate fell to 8.3%.

The US markets finished stronger, with the Dow (+1.6%), Nasdaq (+3.2%) and S&P 500 (+2.2%) all recording decent gains.

European markets also kept a focus on Greece, with the country’s debt swap deal edging closer to being complete.

Some of the biggest winners in Europe were the UK FTSE (+2.9%), the German DAX (+3.9%) and the French CAC (+3.3%).

Asia was mixed for the week, with US nonfarm payrolls data not hitting the markets till after they were closed.

China did release PMI data, which showed that manufacturing is still growing, but this had little effects on the markets.

The Hang Seng put on 1.3% and the Nikkei slipped 0.1%.

Commodities were mixed; Palladium (+2.7%) was the best of the gainers, with lead (-3.1%) the worst of the losers.

Oil and gold were also mixed; gold added 0.3%, while oil fell 1.7%.

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The Australian climbed higher last week on the back of some strong earnings results from the US and rumours out of Europe that a debt swap deal in Greece is close to being completed.

The ASX 200 jumped 49 points (+1.2%) last week, to close at 4288.

The big four were some of the largest contributors to the index; ANZ (ASX:ANZ) climbed 2.9% while Westpac jumped 3%.

The major miners were mixed; Rio Tinto (ASX:RIO) advanced 3.3%, whilst rivals BHP (ASX:BHP) and Fortescue were down 0.5% and 2.5% respectively.

The stronger Aussie dollar hurt the steelmakers. Bluescope Steel plummeted 10.5%, while rival Onesteel was not much better, sinking 8.2%.

The energy sector performed roughly in line with market; Woodside appreciated 1.4% and Santos (ASX:STO) added 0.4%.

Pharmaceutical company, ResMed was one the best performers for the week soaring 9.2% after providing positive guidance for the year ahead.

The retailer were some of the worst performers for the week; David Jones was down 0.4%, Myer tumbled 4.5% and JB Hi-Fi dived 3.4%

Supermarket giant Woolworths backtracked 0.5% for the week.

Economic News: What Does it Mean?

In economic news the Product Price Index (PPI) and Consumer Price Index (CPI) were released last week.

The PPI for the December quarter showed that input prices rose 0.3% in the final quarter compared to economist expectations of a rise of 0.4%.

On annualised basis, the PPI rose 2.9% from a year earlier.

The CPI was unchanged in the fourth quarter, which was below economist expectations of a 0.2% rise.

The fourth quarter result took the annual rate to 3.1%, below expectations of 3.3% growth.

Trimmed mean CPI, which better measures the underlying trend in inflation, showed a rise of 0.6% in the December quarter, for an annual growth rate of 2.6%.

With core inflation inside the RBA’s 2% – 3% target band, there may be room for it to cut interest rates when it meets on the first Tuesday in February.

In the week ahead, Building Approvals and Trade data is slated for release on Thursday.

Overseas Market and Commodity Wrap:

International markets were mixed, after the release of similarly mixed US economic data and a spate of company earnings reports.

In the US, existing home sales rose by 5% to a 4.61 million annual rate in December, close to the forecasted result of 4.65 million. However GDP data released disappointed, with growth of 2.8% against an expected 3%.

The US markets were mixed; the Dow was down 0.5%, while the broader Nasdaq (+1.1%) and S&P 500 (+0.1%) both recorded gains.

It was a relatively quiet weak on the economic front for Europe, with the region on edge regarding a debt swap deal for Greece.

Among the key European indices, the UK FTSE (+0.1%) and the German DAX (+1.7%) strengthened, whilst the French CAC dropped 0.1%.

Asian markets were stronger despite the closure of Chinese markets due to New Year celebrations.  The Nikkei was up 0.9%, while the Hang Seng closed up 2%.

Commodities all preformed solidly, benefiting from the speculation of another round of QE out of the US. Silver (+6.7%) and Zinc (+6.8%) were some of the biggest gainers.

Gold and oil also enjoyed a positive week. Gold jumped 4.1%, while oil put on 1.3%

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The Australian market gained ground last week on the back of encouraging profit results from US banks and several successful bond auctions in Europe.

The ASX climbed 44 points (+1%) last week, to close at 4240.

The big four banks were mixed; ANZ (ASX:ANZ) lost 1.5% whist rival NAB (ASX:NAB) put on 0.3%.

The mining majors helped drive the market higher, buoyed by stronger data out of china. BHP (ASX:BHP) advanced 2.4%, Rio Tinto (ASX:RIO) jumped 3.6%, whilst Fortescue soared 9.3%.

Lynas was the best performer in the ASX 200, recording a massive 23% gain after upgrading its mineral resource estimate at its Mount Weld Project.

The energy sector performed strongly; Santos (ASX:STO) and Woodside jumped 4.5% and 3.5% respectably, both released strong production numbers.

The retailers also took part in the gains; David Jones (+0.4%), Myer (+3.9%) and JB Hi-Fi (0.84%) all finished in the positive.

However supermarket giant Woolworths underperformed the market, dropping 3%.

Economic News: What Does it Mean?

There was a raft of economic news during the week, with consumer sentiment and jobs data being the most critical.

Consumer sentiment rose 2.4% in January, after it plunged 8.3% in December.

The RBA’s two rate cuts late last year were acknowledged as having a big impact on the turnaround, although the number still fell short of analyst estimates.

Employment data released showed that the jobless rate remained flat at 5.2% in December; economists were expecting the rate to rise to 5.3%.

However the total number of people employed fell 29,300 in December, in contrast to economist expectations of a 10,000 net gain.

The decrease in employment was driven by a drop in part-time employment of 53,700 people, which was offset by an increase in full-time employment of just 24,500 people.

The result increases the likelihood of a rate cut in February by the RBA.

In the week ahead, CPI data is slated for release on Wednesday with an expectation of a 0.2% rise in inflation during the previous quarter.

Overseas Market and Commodity Wrap:

Overseas market collectively rallied last week, as debt fears eased in Europe.

France and Spain held bond auctions at which they saw their borrowing costs fall. For France it was the first auction since S&P downgraded the country’s credit rating.

Some of the best performers in Europe were the UK FTSE (+1.6%), the German DAX (+4.3%) and the French CAC (+3.9%).

US stocks were buoyed by a manufacturing survey that exceeded economist expectations and some stronger-than-expected results from financial giants Bank of America and Goldman Sachs.

The good news help drive the US markets higher; the Dow (+2.4%), Nasdaq (+2.8%) and S&P 500 (+2.0%) all recorded gains.

Closer to home Chinese GDP showed the country growing at 8.9% annual pace in the fourth quarter, beating market expectations of an 8.7% rise.

Asian market took part in the global rally. with the Hang Seng (+4.7%) and Nikkei (+3.1%) both advancing.

Commodities benefited from the strong GDP data out of China; lead (+8.6%) and silver (+7.3%) produced some of the biggest gains.

Gold also enjoyed a solid week, putting on 2%, however oil dropped 0.6% amid easing Middle East supply concerns.

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All numbers based on the last four weeks

The Australian market gained slightly since we last wrote our wrap, on the back of better news coming out of Europe and the U.S.

The ASX climbed 37 points (+0.88%) over the last four weeks, to close at 4196 on Friday.

The banking majors helped the market climb; NAB (ASX:NAB) and CBA (ASX:CBA) were the best of the big four, gaining 1.6% and 1.9% respectively.

The big miners preformed strongly; BHP (ASX:BHP) advanced 4%, Rio Tinto (ASX:RIO) jumped 5.5%, whilst smaller rival Fortescue put on 3.3%.

The energy majors strengthened on the back of higher oil prices; Woodside increased 5%, while Santos (ASX:STO) appreciated 1.6%.

The retail sector was the worst performing sector over the last month, not helped by the spate of downgrades coming in the last few weeks of the year.

Billabong (-49.2%), David Jones (-13.8%) and Myer (-8.4%) were the among the worst performing in the sector.

Economic News: What Does it Mean?

In economic news Job Advertisement and Home Loans data were released today.

ANZ’s monthly job advertisements survey showed the number of advertisements in December fell 0.9% from the prior month.

The fifth drop in the six months does not bode well for the official jobless figures, which are slated for release later this week.

Separately, the number of home loans approved in November rose 1.4% compared to market expectations of a 1% gain.

The increase in home loan approvals makes it five months in a row that there has been an increase in approval, likely spurred by diminished prospects of an RBA rate hike.

Overseas Market and Commodity Wrap:

Overseas markets preformed strongly over the last month, and have started the new year off on a positive note.

However late last week ratings agency, S&Ps downgraded the credit ratings of nine eurozone countries, including France and Italy.

S&P also said that they are forecasting a recession in the eurozone, with a 40% probability for this year.

Some of the week’s biggest gainers in Europe were the UK FTSE (+4.6%), the German DAX (+7.7%) and the French CAC (+7.5%).

US markets strengthened, with the Dow (+4.7%), Nasdaq (+6.1%) and S&P 500 (+5.7%) all recording positive moves.

Asia also took part in the global rally; the Hang Seng jumped 5%, however the Nikkei only managed a 1.2% gain over the four weeks.

Commodities also profited from the improved sentiment, with copper (+8.9%) and aluminium (+7%) among the notable performers.

Oil and gold both enjoyed a strong four weeks, with a 5.3% and 2.1% climb, respectively.

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The Australian stock market lost ground last week, as the dust settled on the historic EU agreement that failed to actually alleviate the underlying debt concerns.

The ASX 200 lost 94 points (-2.2%) to close the week at 4159.

The banking majors weighed heavily on the market; NAB (ASX:NAB) (-2.5%) and Westpac (ASX:WBC) (-2.7%) both recorded losses as they citing tightening margins at their AGM’s.

The big miners struggled on the back of extremely weak commodities, BHP (ASX:BHP) declined 1.9%, Rio Tinto (ASX:RIO) tumbled 3%, whilst rival Fortescue dropped 2.5%

The energy sector struggled during the week; Santos (ASX:STO) decreased 1.3%, while rival Woodside gave up 1.9%.

Retails were in the spotlight by the end of the week, after JB Hi-Fi shocked the market when it warned it expects EBIT to be 5% below 1H11.

JB Hi-Fi plunged 18.9%, Myer nosedived 8.7%, whilst rival Harvey Norman did not fare any better for the week, crashing 6.5%.

Supermarket giant Woolworths acted as a defensive and managed to defy the trend with a 2.5% gain.

Economic News: What Does it Mean?

There was a raft of economic news during the week, with trade surplus, business confidence and consumer sentiment data all released.

Figures released by the ABS showed that the trade surplus declined by $654 million in October (from September), which fell short of economists’ forecasts.

The surplus last month was a seasonally adjusted $1.6 billion compared to a forecast of $2 billion.

Exports were flat while imports climbed 2%.

Business conditions rebounded in the month of November according to a NAB business survey.

According to the survey the business condition index rose to +1 for the month, after a zero reading in October.

The business confidence index stayed steady at +2.

The Westpac Consumer Sentiment index showed confidence had slumped 8.3% in December, confounding some economist expiations of a rise.

The fall brings the index to 94.7 points, its lowest level since August.

Westpac Chief Economist Bill Evans said that while the drop was surprising, it is not unprecedented for a fall in sentiment after a rate cut.

In the week ahead all eyes will be on the RBA minutes slated for release on Tuesday.

Overseas Market and Commodity Wrap:

It was another horrid week in overseas markets, which moved in sync with any news out of Europe of the US.

Markets had time to digest the EU summit proposals and concluded that the summit’s measures won’t do much to resolve the underlying problem.

There was an also renewed concern over a potential downgrade in Spanish and French debt.

Some of the worst performers in Europe were the UK FTSE (-2.6%), the German DAX (-4.8%) and the French CAC (-6.3%).

In the US, the Federal Reserve said it will hold its rate structure in place, with no mention of potential QE3 hurting market participants.

There was some good news, with encouraging jobs and manufacturing data, but it was not enough to prevent the Dow (-2.6%), Nasdaq (-3.5%) and S&P 500 (-2.8%) from recorded losses.

Asia was not spared from the carnage; the Hang Seng and Nikkei both dropped 1.6%.

Carnage is also the best word to describe commodities for the week, which were hurt by the possibility of a slowdown in Chinese economic activity. Lead (-9.5%) and Silver (-8.2%) were some of the hardest hit.

Oil and gold both dropped sharply for the week, with a 5.9%, and 6.9% slump, respectively.

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The Australian market lost ground last week amid concerns an agreement would not be reached at a critical European summit in Brussels.

The ASX 200 edged lower 85 points (-2.0%) to close the week at 4203 – giving back some of the previous week’s gains.

The banking majors weighed on the market; NAB (ASX:NAB) lost 2.2%, whilst Westpac (ASX:WBC) dropped 2.3%. During the week all the banks announced that they will pass on the full RBA rate cut to consumers.

The big miners struggled on the back of weaker commodity prices; Rio Tinto (ASX:RIO) sank 3.9%, BHP (ASX:BHP) declined 2.2% and rival Fortescue let go of 2.9%.

Smaller miners Aston Resources (+7.1%) and Whitehaven Coal (+3.2%) enjoyed good weeks after they announced they were in discussions about a possible merger.

Both companies agreed to proceed with the merger today.

The energy sector struggled during the week; Santos (ASX:STO) dropped 4.8%, while rival Woodside (ASX:WPL) slumped 5.3%.

Retails also had a bad a week, seemingly unhelped by the RBA rate cut.

David Jones crashed 7.6%, Harvey Norman lost 3.7%, whilst rival JB Hi-Fi held up better than most to record only a 0.1% loss.

Supermarket giant Woolworths bucked the trend to record a 0.5% increase.

Economic News: What Does it Mean?

It was busy week for local data, with the RBA rate decision, the release of third quarter GDP and also the November jobs report.

The RBA responded to the global uncertainty and decided to cut the official cash rate from 4.5% to 4.25%, matching economist expectations.

RBA governor Glenn Stevens said that the European financial and banking problems were likely to weigh on economic activity for the foreseeable future.

The central bank cited weakening commodity prices as a factor behind the rate cut.

Lower commodity prices have helped take the pressure off inflation, thus providing scope for further easing.

The GDP figures released showed that the Australian economy expanded by 1% in the third quarter, beating economist expectations of a 0.8% rise.

For the 12 months to September, GDP grew seasonally adjusted by 2.5% compared to an expectation of a 1.8% gain.

Second quarter GDP was also upwardly revised to 1.4% from 1.2%.

Employment data revealed an increase in the unemployment rate to 5.3% in November. Economists were expecting the rate to stay the same at 5.2%.

The total number of people employed fell 6,300 in November, which was well short of economist expectations of a 10,000 net gain.

A breakdown of the numbers revealed a decrease in full-time employment of 39,900 people, whilst there was an increase in part-time employment 33,600.

In the week ahead we have the NAB Business Confidence data slated for Tuesday and Westpac Consumer Sentiment survey is scheduled for Wednesday.

Overseas Market and Commodity Wrap:

It was an erratic finish to the week in overseas markets, which responded sharply to developments out of Europe.

The two major pieces of news were comments by ECB President Mario Draghi, which dashed hopes that the central bank would raise its bond purchases of debt-ridden eurozone nations.

The other piece was an historic agreement to draft a new treaty for deeper economic integration in the eurozone.

The new agreement helped most of the international indices finish above water for the week.

Some of the biggest gainers in Europe were the UK FTSE (+0.8%), the German DAX (+1.9%) and the French CAC (+2.5%).

The US markets also finished stronger, with the Dow (+1.6%), Nasdaq (+1.9%) and S&P 500 (+1.7%) all recording gains.

However Asia was weaker for the week, with the news of an agreement in Europe not hitting the markets till after they were closed.

The Hang Seng fell 2.9% and the Nikkei dropped 1.5%.

Commodities were mostly positive, benefiting from the improved sentiment out of the EU. Lead (+2.9%) was the best of the gainers, whilst Palladium (-1.9%) the worst of the losers.

Oil and gold both enjoyed a solid week, with a 1.1%, and 0.2% climb, respectively.

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