Market News Update - February 2, 2011

To start the year, the S&P/ASX 200 finished up 0.18% for the month, keeping out of the red due to a fast finish by Australian financials. In the US the S&P 500 was up 2.37% for the month as Bernanke continued to leave rates low in order to encourage investors to seek higher risk investments.

Domestic

In Australia, Inflation rose by 0.4 per cent in January 2011 with year-end annual inflation sitting at 3.4 per cent. However consumer sentiment fell sharply due to the Queensland floods. The government announced that $3.8 billion will be raised in spending cuts and the deferral of infrastructure projects together with an increase of A$1.8 billion revenue from a one-year flood levy in an effort to fund the post-flood reconstruction of Queensland.

Internationally

Data out of the US has been improving through-out January which was evident through recent corporate earnings releases. Corporate US appear to be in good shape with strong balance sheets. However jobs data out of the US was disappointing.

In China the authorities continue to implement policy measures to slow economic activity in an effort to curb rising prices. The latest was the announcement of a property levy as part of measure to rein in speculation in its property markets. Also announced during January was that the annual rate of consumer price inflation slowed in December following a fall in the annual rate of food price inflation and the rate of GDP growth unexpectedly increased in the fourth quarter.

We saw Standard & Poors downgrade Japan's credit rating cut for the first time in nine years from AA to AA-. The reasons for the downgrade included Japan's aging population, persistent deflation and lack of coherent strategy to address the country's growing debt issues.