Photographer: Marianna Massey/Getty Images

Australia's Week in Charts: Good Riddance to a Miserable Quarter

  • First quarterly share drop for 2017; bonds rose over period
  • Aussie is second-worst G-10 currency over the three months

Investors in Australian assets may be happy to see the end of a quarter that has been far from kind to many as the local economy strives hard to resist falling into recession, something it hasn’t experienced for 2 1/2 decades.

Aussie shares are dishing out some of the worst returns in the developed world this quarter as banks, hammered by government levies and a credit rating downgrade, decline along with energy shares. Citigroup Inc. and the quants at Morgan Stanley led a chorus of bears recommending to avoid most stocks Down Under. The nation’s dollar struggled with the second weakest performance among major currencies as political gridlock and signs of limp consumer spending overshadowed a slew of positive data surprises for the economy, including the best jobs growth since 2004.

As the chart shows, Australian equities are being trounced by their counterparts in New Zealand. The S&P/ASX 200 Index slid about 1 percent since the end of March to unwind some of its previous four-quarter surge. Among 24 major stock markets, only Canada ranks worse.

That came as iron ore plunged 22 percent in the quarter through to June 28 , putting it on track for its worst drop in more than two years and helping to bring out the pessimists.

As a result, traders have boosted bearish bets on Aussie equities, sending the number of S&P/ASX 200 Index put options outstanding to a two-year high relative to calls. Meanwhile leveraged funds went net short the local dollar for only the second time in the past year.

That bonds were left ruling the roost may owe much to the continuing international demand for the world’s highest yielding AAA sovereign paper. Demand rose in the most recent government bond auctions for the respective maturities and research from the federal funding arm showed that investors are even more eager for Aussie notes than they are for Treasuries, on one measure at least.

The term premium -- a gauge of the extra compensation investors demand to own the benchmark maturity instead of rolling over a series of shorter-dated obligations -- has been below zero on 10-year government debt Down Under for more than two years, research released last week by the Australian Office for Financial Management shows. It has also been lower than the term premium on similar-maturity U.S. debt, and the researchers said the drop for Australia has likely been driven by the way large-scale asset purchases carried out by major central banks fueled appetite for higher-yielding sovereign debt.

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