Sharemarket rallies, economic growth outlook still soft, SEEK’s Malaysian buy: Economy roundup

Bargain hunters have cautiously returned to the Australian sharemarket this morning, spurred on by news that the US Federal Reserve will bail out US insurance giant American International Group.

Bargain hunters have cautiously returned to the Australian sharemarket this morning, spurred on by news that the US Federal Reserve will bail out US insurance giant American International Group.

After falling 1.4% yesterday, the benchmark S&P/ASX200 index gained 40.1 points to reach 4790.9 at 11:40am AEST.

Most of the big banks were up around 1%, despite admitting yesterday to multi-million dollar exposures to collapsed US investment bank Lehman Brothers. ANZ and Commonwealth Bank have the biggest exposure at $150 million, followed by $100 million for NAB and just $10 million for Westpac.

In corporate news this morning, online job advertiser SEEK took a 10% stake in Malaysian company JobStreet Corporation for $19.3 million.

SEEK says JobStreet is a leading provider of employment websites in South East Asia with strong market positions in Malaysia, Singapore and the Philippines, and presences in Indonesia, India and Thailand.

This morning’s key economic data was the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future. The index stood at 3.7% in July, well below its long term trend of 4.2% but above the June reading of 2%.

Westpac chief economist Bill Evans says the index highlights the yawning gap between Australia’s booming mining sector and the rest of the economy, which is slowing rapidly. While the outlook for growth has improved in recent months, the economy is clearly slowing and the recent financial turmoil is likely to force the RBA to cut rates.

“There is a strong case for the bank to deliver a further 0.25% rate cut to address these tighter financial conditions. Further cuts after that are also likely before the bank pauses to ensure that the necessary reduction in inflation occurs over the medium term.”