Market Snapshot 3 December 2013
Posted on Monday, 9 December, 2013 by Graham Fox
3rd December 2013
The Reserve Bank of Australia (RBA) left the official cash rate unchanged at 2.5% at today’s monthly board meeting prior to the Christmas break. The next RBA meeting will be in February 2014.
In the statement by Glenn Stevens, Governor of the RBA on today’s Monetary Policy decision, he noted that the rationale for not moving the cash rate lower was due mainly to the fact that:
“In Australia, the economy has been growing a bit below trend over the past year and the unemployment rate has edged higher. This is likely to persist in the near term, as the economy adjusts to lower levels of mining investment. “
The low cash rate is benefiting the domestic residential property market which has seen record clearance rates at auctions around Sydney. Elsewhere around the other states, housing demand is showing a mild increase, buoyed by the market sentiment overall.
The Australian share market (S&P/ASX 200 Accumulation Index) went backwards in November recording -1.31%. The market returns for the past 12 months (Nov 12/Nov 13) however, is up an impressive 23.23% (share prices plus dividends).
Global share markets continue to post solid gains with the MSCI World ex Australia (Net TR) AUD) delivering a +5.69% for November. Over the last year, the same index of global stocks has appreciated by a whopping 45.05%. Now that is what I call a recovery and highlights the need for a diversified portfolio (domestic and global).
The AUD/USD exchange rate has benefitted unhedged global investors over this period, falling from 1.0431 in November 2012 to 0.9087 at the end of November this year. That weakness added some +12.88% to the value of the global investments held in USD terms.
The Australian 10 year Government bonds yield is 4.32% today compared to 3.15% a year ago. That is a rise of 1.17% despite the RBA cash rate falling from 3.25% to 2.5%, a fall of 0.75%, over the same period. So an easing in official rates did not result in a fall in the market linked interest rates.
Overall, global financial funding conditions remain very accommodative. Volatility in financial markets has abated for the moment. Long-term interest rates remain relatively very low and there seems to be funding available for creditworthy borrowers.
While inflation (measured by the consumer price index) in Australia is running at around 2.2%, most global countries are largely flat and seems well contained. Inflation remains a background factor worrying fixed interest investors. Rising house prices (stronger in Sydney) may lead to more spending as consumers gain confidence and this eventually, will push the prices of goods higher.
Most economists are optimistic about the health of the economy in 2014 however risks still remain in the short term (such as unemployment at 5.8%) as the Australian economy adjusts to an easing in the mining boom and switches back to a more traditional drivers of growth.
Author: Graham Fox, Specialist Investment Adviser, FOX Wealth Management – Authorised representative number 404026 of HNW Planning Pty Ltd., AFSL No. 225216. www.foxwealth.com.au
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