Date: May 06 2012
GREEK poet Homer wrote that ''many hands make light work''. Yet when it comes to tackling Europe's sovereign debt problems, that is proving to be anything but the case, and investors know it.
As Greece and France head to the polls this weekend, talk of more economic stimulus to help Europe has re-emerged as European Central Bank President Mario Draghi urged the 17-member euro group of nations to agree on a growth strategy that will go hand in hand with fiscal discipline.
Further evidence of weakness in Europe weighed on global markets in the week as Spain moved back into recession and manufacturing activity weakened.
There are also concerns that a change in leadership in France or Greece may derail the region's austerity efforts.
In the United States, where key employment data was due late Friday Australian time, there have been recent signs of slowing business activity and softness in the labour market. US service industries expanded less than projected, with the Institute for Supply Management's non-manufacturing index falling to a four-month low of 53.5 in April from 56 in March.
Still, many analysts are holding on to better economic data last month and the belief that the US recovery remains on track.
While concerns about Europe and China led to a general risk-averse approach to investing during the week, improved growth prospects in China offered some relief, which helped Australian miners and commodity prices.
Australian shares also benefited early in the week from the Reserve Bank of Australia's decision to cut rates by half a percentage point to 3.75 per cent, more than many economists were expecting.
The S&P/ASX200 hit a nine-month high and broke above 4400, but on Friday shares fell 33 points, or 0.74 per cent, to 4396. The All- Ordinaries index shed 35 points, or 0.78 per cent, to close at 4459.
Despite the result, local shares managed to finish higher, with the benchmark up 0.78 per cent.
The Australian dollar, however, lost ground, losing about 1.6 per cent over the week, but it was unchanged at $US1.026 on Friday. The local currency came off its $US1.04 highs early in the week after the central bank cut rates by more than expected on Tuesday. The RBA released its quarterly statement on Friday, revealing more concerns about the risks to the economy.
In an investor note, National Australia Bank senior economist David deGaris said the RBA was prepared to do more to support growth, given forecasts of lower growth and inflation for 2012.
The best-performing sector in the week was telecommunications, up 2.78 per cent, as the security of high-yield stocks such as Telstra were favoured in a defensive play.
Telstra shares put on 2c on Friday to close at $3.61, their highest level since August 2009. UBS Wealth Management head of investment strategy George Boubouras said once talk of rate cuts begins, investors start looking for income certainty in stocks such as Telstra and the banks.
''People want those dividend stocks but they are paying extra for it than they were three months ago, as the share price rises and dividend yields fall,'' he said.
Financial stocks gained ground on Friday as the major banks came into focus during their reporting season.
Among the big four Westpac was steady on Friday at $22.91, National Australia Bank was 6c lower at $25.14, Commonwealth Bank lost 6c at $52.62 and Australia and New Zealand Banking Group finished 20c off at $23.44.
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