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Australian Investment Blog

Morning Report 04/03/2015

Morning Report Wednesday 4 March 2015

After “no rate cut” where now for equities?

At 2.30pm yesterday, the Reserve Bank of Australia (RBA) surprised the vast majority of “market experts” by leaving interest rates unchanged at 2.25%. The current rate is the lowest in history and another cut is expected in coming months, but so anticipated was a change yesterday, that we witnessed a dramatic 94 point intra-day fall by the ASX200 after the RBA lack of action.

• The futures market is still factoring in 2% interest rates in Australia within 6 months; a cut has simply been put back a few months.

Australian 3-year bonds had a small move up in rates but the trend remains clearly down – see chart 3. Not that long ago, interest rates on 3- year bonds were almost 3 times higher, close to 5.5%, back in 2010 – remember Soccer World Cup in South Africa, the BP Oil spill and WikiLeaks. I strongly believe investors should remain open minded to where rates will be in 2020, simply because it will have a large bearing on which will be the best stocks to own. Looking forward, the below scenario should be a little sobering to people that believe you cannot lose buying high yielding stocks:


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