Posts Tagged ‘Reserve Bank’

Stock Market Analysis: Interest Rate Hike Looms

Wednesday, September 22nd, 2010

The Australian market typically experiences seasonally weakness from mid-September through to mid-October. Those contrary investors out there looking to trade the ASX on the bearish side, could look to the RBA discussions of an impending interest rate hike as a catalyst for some share price weakness into October.

Yesterday the Reserve Bank governor Glenn Stevens, warned that the benign inflationary environment that we have enjoyed over the past two years is about to change. The minutes of the last RBA meeting which were reported today, clearly signal that the next increase in interest rates will happen sooner rather than later. The RBA pointed to our strong domestic economy, which is driven by the resources boom and the consequent inflationary pressures as the key reasons for the monetary policy tightening bias.

The board flagged global risks that are still providing head winds in overseas economies including: European sovereign debt issues, Chinese governments pressure to tighten their fiscal policies to cool their asset price inflation, and the problems in the U.S. with their jobless recovery. These factors gave the RBA sufficient reason to leave rates on hold at 4.5% at the September meeting.

The RBA will give investors some more insight to their thinking when they release the Reserve Bank’s financial stability review on Thursday. The currency market is pricing in a 25 percent chance of a rate hike in the next October meeting and a 65 percent chance of a subsequent rate hike on Melbourne Cup day in November.

Many investors will have been getting nervous about the cracking run that stock markets have had this September so far. Options volatility is subdued at the moment, which gives investors access to “cheap” protection, so investors may consider taking this opportunity to protect their portfolios.

The ABC website presents some great charts which can be found at the link below for those of you who want to delve into how the Australian economy has performed over the past decade in relation to: interest rates, inflation, GDP, CPI, Current Account, Unemployment and Retail Sales.

http://www.abc.net.au/news/events/financialcrisis/charts/gdpgrowth.htm

By Michael Hevern
Head of Research

Post to Twitter

Tags: , , , , , , ,
Posted in Morning Wrap, Stock Market Analysis | 1 Comment

RBA leaves interest rates unchanged

Tuesday, February 2nd, 2010

The RBA shocked the market today by leaving benchmark interest rates unchanged at 3.75%. In a statement RBA governor Glenn Steven said:

“The global economy is growing, and world GDP is expected to rise at close to trend pace in 2010 and 2011. The expansion is still likely to be modest in the major countries, due to the continuing legacy of the financial crisis, resulting in ongoing excess capacity.

“In Asia, where financial sectors are not impaired, recovery has been much quicker to date, though the Chinese authorities are now seeking to reduce the degree of stimulus to their economy. Global financial markets are functioning much better than they were a year ago. Credit conditions nonetheless remain difficult in the major countries as banks continue to face loan losses associated with the period of economic weakness. Concerns regarding some sovereigns have increased.

“In Australia, economic conditions have been stronger than expected, after a mild downturn a year ago. The effects of the fiscal stimulus on consumer demand have now faded, but household finances are being supported by strong labour market outcomes and a recovery in net worth. Public infrastructure spending is now boosting demand, as is an upturn in housing construction. Investment in the resources sector is strong. The rate of unemployment appears to have peaked at a much lower level than earlier expected.

“Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point. Since information about the early impact of those changes is still limited, the Board judged it appropriate to hold a steady setting of monetary policy for the time being.”

He went on to say that “interest rates to most borrowers nonetheless remain lower than average. If economic conditions evolve broadly as expected, the Board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term.”

This essentially means that the RBA has taken on board the move by China to reduce liquidity, inflation is not a concern at the moment but credit markets are still tight. The RBA are likely to pause and see the effect prior to any more increases.

Post to Twitter

Tags: , , ,
Posted in Stock Market Analysis | 2 Comments

Interest rates expected to rise today

Tuesday, February 2nd, 2010

Economists are expecting the Reserve Bank to lift the benchmark interest rate by 25 basis points to 4% today.

Bloomberg cites several contributing factors to what would be the fourth successive interest rate rise:

  • an employment surge from three years ago, (although there was an 8.1% fall in job ads in January, according to yesterday s ANZ job advertisement index)
  • the largest increase in house prices since 2007
  • an expectation of accelerated inflation

    • It s expected that the March meeting of the RBA will see interest rates kept steady.

    The ASX is expected to open higher this morning ahead of the decision.

Post to Twitter

Tags: , , , ,
Posted in ASX Company News | No Comments

Backlash over Westpac's rate hike

Monday, December 7th, 2009

Westpac’s controversial rate rise has triggered another two resignations from its Community Consultative Council.

The Finance Sector Union and the ACTU have written a strongly worded letter to Westpac, expressing “dismay and disappointment” in the bank’s interest rate hike.

A day before the Reserve Bank‘s announcement, a Westpac executive met with the council to discuss the financial hardship a rate rise would mean for unemployed people and those on reduced hours. It was the same executive who later announced Westpac’s own mortgage rate increase, almost double the amount pegged by the RBA.

According to the Westpac website, the Community Consultative Council is designed to help the bank “determine our priorities”. In their resignation letter, the unions accuse the bank of being “interested in using corporate social responsibility merely as a public relations exercise, paying scant regard to the real concerns of the community”.

You can read the full letter here…

Westpac Banking
ASX Code: WBC

Chart source: Market Analyser. Sign up for a free charting software trial!

For more on this news:

Post to Twitter

Tags: , , , ,
Posted in ASX Company News | No Comments

What's Hot: ASX 200, where to now?

Wednesday, April 15th, 2009

The great bear market rally we have experienced since early March gives us a great opportunity to take time to reflect upon our investment strategy going forward.

The ASX 200 has been in a downward spiral since mid 2007 (as shown on this monthly chart). I have drawn the Fibonacci retracement levels on the right hand side of the chart, to illustrate key levels that will offer resistance on any move up.

Figure: ASX 200 2003 to 2009 Monthly Chart

Drilling down to the weekly chart you can see the decline in the ASX 200 bottomed around 3120 representing an over 80% retracement from the bull market run from the 2003 trough to the 2007 peak.

Figure: ASX 200 2007 to 2009 Weekly Chart

The market is currently running into resistance around the 3800 level and we would want to see a weekly close above 3850 to confirm a turnaround in market sentiment. My view is that we are experiencing a bear market rally, which typically results in an around 20% recovery and generally lasts anywhere up to 45 days.

Drilling down to the daily chart you can see that an upward trending channel has developed since early March. The market is running in resistance and the key levels to the upside are 3800 then 4000. A close below 3600 would signal the bears are assuming control and the tipping point to trigger a trade to the short side would be a close below 3550. Should this tipping point be broken we would expect a pullback towards 3400 and if that level is broken a retest of the recent low is likely.

Figure: ASX 200 2009 Year to Date Daily Chart

Keys factors likely to impact on market direction in the near term:

  1. US companies are starting to report their quarterly earnings. This began this week and continues in earnest next week. The focus will be on the forecast earnings.
  2. International Monetary Fund (IMF) is expected to report that there is $US4 trillion of toxic debt (on 20th April). This must be unwound at some point.
  3. RBA cut interest rates on April 7 by 25 bps to 3%, however Australian banks are unwilling to fully pass this on to their customers. This indicates that credit and debt funding is still hard to access and the credit crisis is still impacting on the Australian economy and companies.
  4. G-20 headlined last week that they would back a massive $US1 trillion global bailout package. However the devil is in the detail (as the Obama Administration found with the TARP package). Asset quality and debt levels are not equal among different counter parties.

Call to Action

  • Only trade liquid stocks. A buyer s drought can play havoc with your bottom line.
  • Only trade stocks with solid balance sheets and positive earnings prospects.
  • Take profits as they arise.
  • Do not allow your profits from the recent run to evaporate.
  • Reduce exposure to more risky assets. Debt and credit quality are key issues.
  • Credit will remain tight for the foreseeable future.
  • Rebalance your portfolio: only include upwardly trending stocks in long portfolios.
  • Consider balancing your portfolio with Long and Short positions.
  • Actively manage your portfolio, by introducing option strategies into your portfolio (or simply buy some put protection for your positions).

The bear market rally we have experienced in the past month has been great, but do not get complacent and take this opportunity to replace and protect your portfolio. Our MDS Financial Research report will inform you when it is time to trade.

By Michael Hevern

Post to Twitter

Tags: , , , , , ,
Posted in Stock Market Analysis | No Comments

Go you good thing

Friday, March 27th, 2009

In the spirit of ending the week on a buoyant note, let s pause and consider some of the good news stories to have struggled out of the normally gloomy finance and business pages in the last day or two

  • A key United Nations survey is predicting modest positive growth for Australia in 2009
  • The Australian share market is heading for its biggest monthly gain in more than 20 years
  • The Australian dollar crept back up above 70 US cents
  • The Reserve Bank believes Australia s banks are in a relatively strong position for coping with the GFC
  • US stocks have rallied for a second straight day, following positive economic data which fuelled hopes that the US economy may be stabilising

Inevitably, each of those items is balanced with talk of ongoing bear market conditions and unsustainable rallies, but sometimes it pays to be selective in your news intake.

More info:

Post to Twitter

Tags: , , , , , , ,
Posted in ASX Company News | No Comments

Mr Rudd s $42bn plan: what do the editorials say?

Wednesday, February 4th, 2009

Following the government s announcement of a second economic stimulus package yesterday, our major media sources have had much to say about the effectiveness (or otherwise) of the PM s strategies.

Here s what some editors and analysts are saying about Mr Rudd s $42bn golden handshake:

The Australian: a bold plan

  • The high cost is justified by the depressing economic figures, and by the challenge of preventing job losses
  • Scepticism regarding the economic benefits of $150m worth of level crossing boom-gate spending
  • Accepts the government s assertion that this package is about saving Australia from an economic crunch that could set us back by years
  • There are some dangers in the package:
    o long-term deficits if growth does not return
    o less capacity for community spending
    o lump-sum payments are normally inferior to tax cuts, although tax cuts take time to work
  • Kevin Rudd had no choice but to act boldly, and has taken responsibility for the crisis

The Age – Michelle Grattan: this package will be well-received

  • the one-off bonuses (as opposed to tax cuts) makes it easier for the government to return to surplus
  • the infrastructure spending is consistent with Kevin Rudd s education revolution and will be a popular program among voters
  • the package is weak on offers for the unemployed
  • the government can t be confident these measures will keep Australia from recession

The Age Editorial: a commendable response to genuine crisis

  • Aspects of the plan may be debatable. Its size and urgency are not.
  • The government is to be commended for the urgency, scale and structure of its response to the global economic crisis
  • Questionable fairness of a flat $950 bonus, and neglect of pensioners whose incomes are hit by rate cuts
  • Favourable response to infrastructure spending: every $1 spent boosts economic activity by $1.40

The Daily Telegraph: this is more of a political strategy than an economic one

  • A relatively well-positioned economy is being affected by exaggerated and negative commentary. Mr Rudd should be more positive!
  • A one-off fiscal stimulus is short-lived and of questionable effectiveness.
  • The Reserve Bank damaged the economy through mishandling monetary policy in the second half of 2007
  • The government should restore business and consumer confidence through tax cuts

Australian Financial Review: handouts raise concerns

  • Suspicion that the new package is aimed at avoiding a technical recession, a political strategy not economic
  • Nothing for major infrastructure which would provide productive long term investment
  • Insulation handouts are a gimmick, not an energy efficiency policy
  • Tax cuts would be better for small and medium businesses

Bloomberg: more than appropriate

  • Given the state of the global economy, the loss of the budget surplus is necessary
  • Australia is facing greater obstacles than officials in Canberra and Sydney are admitting to

 
Further Information

  • Australian Financial Review

Post to Twitter

Tags: , , , , , , , , ,
Posted in ASX Company News | No Comments