ABX Weekly 27/11/2019

Market Update  

The big news yesterday was the much-anticipated speech by RBA Governor Philip Lowe. The main message was that any sort of QE program is clearly off the cards until official rates hit 0.25%. With the current stimulus and economic figures, it seems unlikely that the RBA will be forced to cut rates to this extreme threshold in the near term. However, some of the leading economist continue to have the view that we will join the rest of the world sooner or later with some sort of QE program. One certainty for investors is that rates will stay low and probably going lower. 

The market was still digesting the recent November RBA minutes with the Board clearly having an easing bias. Most market commentators apply a 50% chance of a 0.25% cut for the meeting in February and an even higher probability for a cut in May 2020. 

The pressure is clearly back in the Governments corner. Fiscal measures must be the next big step to boost our economy to get back on track with growth towards 3% which should help to lower unemployment and lift the all-important consumer confidence. 

The main features in the financial markets this week was once again the strong performance of the equity markets worldwide with the old saying once again working that investors should not “fight the Fed”. In addition, the on-off again comments regarding a possible first phase of a US/China trade deal further supported the upwards momentum. 

There was less movement however in the Government bond rates with the bond markets way more suspicious on the outlook for growth. Our 10y bond rates are still consolidating the recent upward moves and yields were drifting slightly lower back towards 1%, currently standing at 1.04% and the A$ just under 0.68. 

As mentioned in last week’s comments, we currently see strong deal flow in the corporate bond space with some interesting new high yield issues – please contact us on 02 8249 1987 if you have any interest and we are more than happy to show you the details.