Weaker global markets compound ASX's BHP woes, oil and gold weaker, ASX futures down 69 points

It's a trying time for just about every asset class presently, as many equity and commodity markets hover around 2015 lows. Australian bond prices have also continued to fall further since yesterday's strong employment figures, given that a more positive outlook for Australian interest rates would see outstanding fixed interest instruments devalued as the anticipation of higher interest rates would suggest better deals to come via new issuance. This confluence of weakness in asset prices means that very few investors will be having a blast right now, and BHP's exposure to the Brazilian mining disaster has put the boot into the guts of ASX performance.

The Aussie market as a whole has really gone nowhere in the last two and a half years, but while this sounds a bit grim, we can be thankful at this stage that the cooling off of commodity prices and the continued regulatory pressure on banks hasn't dragged the real economy into recession.  While second-quarter GDP in Australia was disappointing, third-quarter GDP is due out in just under three weeks and the consensus forecast stands at around 0.5% quarter-on-quarter, which would bring annualised growth within the range of expectations that sit between 2% and 2.2%. It's important to focus on the underlying economy at times like these because while the 'listed economy' can take a beating due to the combination of poor sentiment and poor corporate performance, an economy showing no signs of extreme stress should provide the resources for corporations to get their butts into gear and chase profits.

Further to the current economic environment, the latest Reserve Bank of Australia (RBA) forecasts--outlined in this month's Statement on Monetary Policy--are quite high, possibly too high, which gives them scope to prepare markets for higher rates even if they do not eventuate as quickly as suggested. The RBA has annualised GDP growth forecasts of between 2.25% and 3.5% for the next four quarters - so one of two things is going to happen: Either the Bank turns out to be correct and the underlying economy fuels increased consumer and business sentiment; or, the Bank gets it wrong and is forced to pin rates at 2% for longer or even drop them as low as 1.5%. Neither are particularly unsavoury outcomes for investors, so I think there truly is merit in looking beyond this soft patch in equity markets and continuing to go about the job of managing a portfolio of companies and instruments that you love.

You'll notice in the table below, taken from the aforementioned Statement, that the Bank makes no great attempt to forecast inflation. At this stage, inflation is not giving the Bank the mandate to raise rates, even with their estimates based on Brent Crude oil prices US$8 above where they are trading right now. Depressed energy prices are key to keeping headline inflation low, and ultimately helping to lower manufacturing input costs. So investors should continue to keep an eye on medium term oil price averages to gauge the likelihood of rate hikes. As much as the US and Australia have touted inclinations to raise rates, low inflation has kept both economies from actually doing so.

Lastly, the Aussie dollar has received a nice little bump from the latest employment report, which has held up well overnight. This is shown on today's second chart.

Source: RBA, Rivkin, Saxo Bank

To view the Rivkin economic calendar and Global Markets matrix, members can click here.

This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

Complex product warning

This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

This article contains information about CFDs, which are considered complex financial products. Please click here to read ASIC's "Thinking of trading contracts for difference?" document before considering an investment in CFDs.
comments powered by Disqus

DISCLAIMER: Rivkin aims to provide clear and simple information to those visiting our website. If any part of this disclaimer does not make sense, please phone Rivkin and ask to speak with a member of our Dealing and Relationship Management Team. Rivkin provides general advice and dealing services on securities, derivatives and superannuation (SMSF). Rivkin also provide SMSF administration and accounting services. Rivkin does not provide advice that takes into account your, or anybody else's, investment objectives, financial situation or needs. We strongly suggest that you consult an independent, licenced financial advisor before acting upon any information contained on this website. Investing in and trading securities (such as shares listed on the ASX) and/or derivatives (such as Contracts for Difference or 'CFDs') carry financial risks. CFDs carry with them various additional risks that differ from more simple securities such as fully-paid company shares. Some of these risks include not owning the underlying instrument from which a price is being derived, settling trades 'over the counter' with a financial institution rather than on a stock exchange, and using leverage to gain access to trades that may have a higher face value than your initial deposit. This risk of leverage means that it is possible to lose more than your initial investment. Our aim is to create more life choices for our clients, which means improving the wealth of clients throughout many market cycles by nurturing a relationship spanning many years. If you are not comfortable with your understanding of the risks involved before using a Rivkin product and service, please contact our office to seek further information or a Product Disclosure Statement, or make an appointment to sit with one of our friendly financial experts. It is in our interest for your Rivkin experience to be a rewarding and comfortable one. Rivkin is a trading name of Rivkin Securities ABN 87123290602, which holds Australian Financial Services Licence No. 332 802.