Monday, December 20 2010
Further Upside into 2011
The outlook into 2011 looks reasonably good but will be dependent on the following:
- Confirmation the US recovery is continuing to take hold. We will be looking for employment to finally show signs of improvement. The early signs are good with corporate balance sheets in good shape and the consumer spending this Christmas and even some signs that housing is finding a bottom.
- Chinese growth being maintained. The risk to China is inflation and their ability to rein inflation without impacting growth. To date they are managing this and also transitioning to greater domestic consumption. We expect some ebb and flow in the Chinese data next year.
- The earnings cycle improving for domestic companies. Interest rates are on hold now and the currency is unlikely to push too much higher so the headwinds which impacted a range of stocks will ease in 2011. The important driver for a range of domestic companies will be a range of large CAPEX projects such as coal seam methane and LNG projects in WA. The income created from these projects should trickle through the whole economy. The thing to watch will be the tightness in the employment market particularly with Unions. This could lead to some inflationary pressure.
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