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SQM Research Ratings Update -  Monday
2nd February 2015
Property Valuations
Research Reports
Discounted/Distressed Properties
Funds Research
Ratings Table

To see the entire table of SQM Research's fund ratings, click HERE

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Fixed Income Update 

Rob da Silva, Head of Research

 
                                      
Expectations of rate cut gain momentum
 
By Rob Da Silva
 
Australian financial markets are widely expecting the Reserve Bank to cut interest rates tomorrow, and I don't rule out more cuts on top of that later this year, given Australia's economy is slowing and unemployment is rising to uncomfortable levels.
 
The ASX RBA Rate Indicator for March shows financial markets were on Friday pricing in a 62% chance of a cut in interest rates at tomorrow’s RBA meeting. Market expectations of an interest rate cut have edged higher in the last few days to the point where it is now almost considered a done deal.
 
There are two primary drivers which are likely to push interest rates lower. First, the Australian economy is slowing more than the RBA had hoped it would; as a result we have seen a kick up in the unemployment rate, which is now heading towards 7% at a time when the jobless rate is falling in the US.

That means more difficult times ahead for the economy as consumers cut back on their spending as unemployment rises from 6.4% in January to more uncomfortable levels as Australia’s falling terms of trade depresses economic activity.
 
Second, the Australian dollar is still probably higher than where the central bank wants to see it. While the currency has dropped against the US dollar, it has been largely steady against other major currencies, including the yen and euro. The RBA will be keen to see it fall further against those currencies to boost the economy, even if this comes at the risk of stimulating the domestic property market.
 
Moreover, Australian interest rates are still relatively high compared to other countries and a cut in official interest rates to 2% would still leave Australian yields higher than those in Europe and the US.  So it's not unreasonable to expect that the central bank will in fact keep on cutting interest rates this year until it is convinced that the Australian economy is firmly on the track towards stronger growth.

SQM’s new role

With SQM Research’s expansion into fixed income and alternatives ratings, we are expecting to release our first fixed income review in coming months. We are delighted by the positive response and support from fixed income managers. We greatly appreciate the support we have received from advisers as well, both our existing subscribers and those who are new to our research and have signed up to our research recently. 

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Our mailing address is: GPO Box 3611, Sydney, NSW 2001, Australia


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Copyright © 2014 SQM Research, All rights reserved.

Our mailing address is: GPO Box 3611, Sydney, NSW 2001, Australia


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