Morning Report Monday 30 March 2015
After yesterday’s long report, I thought today would be a short concise report for this short Easter week. There was one point that I want to reiterate and put firmly in perspective, the current position of the Australian stock market:
• The stock market is up over 10% in the past year, but the company earnings are down 6.7%. However, the 10-year bond interest rates have fallen from around 4% to under 2.4% - see chart 1.
Whilst the medium/long term direction of an individual company, share price is clearly a function of that company’s business performance. The current overall market’s valuation is being significantly elevated by the lowest interest rates in history. The Australian RBA official interest rate is at 2.25% with the market looking for more cuts in 2015/16 - see chart 2. Personally, I will go “out on a limb” and predict they cut 0.25% on Tuesday 7th April.Janet Yellen said on Friday night that the US Fed will commence, gradually raising interest rates this year and will continue as the economy dictates. Hence, we have very different economic cycles playing out with the US raising rates and Australia cutting rates.
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