Australian Market Summary (Issue 390) – 11 March 2016

A few things from me this week.

I will try to scoot through the Aussie shares & economic commentary quickly this week since much of what I want to talk about pertains to global comings and goings.

The ASX200 is up around 1% for the week, with banks again well sought.

We saw improvement reported in local Business Conditions for February in the NAB Business Confidence Survey and we also saw a reasonable set of figures from Westpac’s local Consumer Confidence survey.

The RBA Deputy Governor Philip Lowe reinforced the credibility of calls for additional interest rate cuts locally by acknowledging that ongoing softness in wage growth and inflation provides ‘scope for easier policy’.

We stand minded to believe that the RBA will further lower Australian interest rates in 2016, possibly as soon as Q2.

Australia a relative winner

Despite the ongoing economic malaise locally, we have endeavoured on more than one occasion this past 12 months to demonstrate that we don’t always have to see the glass as half empty here in Australia.

Sure, our national income has been decimated by the collapse in commodity prices and undeniably our economy has been hindered by a lack of genuine leadership and poor decision-making at government level.

Our absolute wealth has definitely taken a hit and will only continue to be impacted in the years to come as our economy adjusts to China’s new path.

But make no mistake, we are in infinitely better shape than much of the rest of the world and that is increasingly being recognized in investment markets this past month.

The Australian Dollar has bounced back to near 75c (from near 68c in mid-January) and Australian shares have outperformed their US peers by over 8% in March alone, including currency moves.

That Australia still has 2% official interest rates is a major boon for local policy-makers as it means we still have traditional levers on which to pull to spark economic activity.

The European Central Bank, implications for markets and Australia

Last night the European Central Bank (ECB) surprised investment markets with an even more aggressive package aimed at stimulating growth, yet it seemed to fall on deaf ears.

The ECB cut official interest rates further into negative territory and increased its monthly purchase of European bonds, including for the first time investment grade corporate bonds.

It also announced a new targeted long-term financing package for the European banking system that would effectively pay banks to lend.

Despite all of these measures, global investment markets ended the day non-plussed.

As a guide European banks initially surged 5% on news of the package, but ended the day down.

The significance of the market reaction to these aggressive measures is relevant in the context of Japan’s similarly forceful policy move in late January (to negative interest rates) that was met by an equally apathetic market response.

Investment markets seem increasingly anaesthetized to central bank actions.

A more critical eye would say market faith in the ability of central banks to engineer stronger growth is waning. Fast.

This is and should be a concern for all investors and speaks to our desire to again remain responsibly conservative in our investment strategy.

That we here in Australia still have the ability to cut official interest rates, when much of the developed world is already under zero AND buying monetary instruments to stimulate liquidity, says a lot for the ‘relative’ arsenal Australian policy-makers have in relation to their global counterparts.


As I mentioned earlier, that Australian cash rates are still north of 2% is hugely attractive to foreign investment managers now regularly used to investing in government bonds for a negative return.

In fact, I read this week that Swiss Re had conducted an assessment of global government bond markets and concluded that over 20% of ALL government bond issuance was currently NEGATIVE YIELDING and that over 35% of European sovereign debt was similarly NEGATIVE YIELDING.

This is incredible.

But it certainly demonstrates to me that in a global context at the very least, Australian assets look capable of reasserting themselves after 3+ years of underperformance.

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