Morning Report Wednesday 6th May 2015
The press are reporting TPG has increased its bid for iiNet, the initial details are not that exciting as TPG understandably tries to win the bidding game against M2 Communications cheaply. Personally I believe MTU is unlikely to lift their bid hence I will be looking to exit the balance of my IIN. Watch for alerts.
As all of you know yesterday the RBA cut interest rates to an unprecedented 2% BUT the $A rallied. Short term the RBA is not concerned about the gyrations of our volatile currency but if the little “Aussie Battler” decides to settle closer to 80c than 70c they will be unhappy and it’s currently at 79.43c. Also, after yesterday’s cut in local interest rates bond markets sold off aggressively, sending interest rates higher as the RBA dropped its “Easing Bias” position going forward. From the lows earlier in 2015 Australian 10 year bond yields have rallied from 2.215% up to 2.865% - an almost 30% increase in rates.Last night the US Trade Deficit was simply awful, the worst in 6 years, implying the US economy shrank in the last rather than growing. Almost $200bn has now been wiped from the value of US bonds in the last 2 weeks alone sending rates higher – see chart 4. Similar to what we experienced yesterday, rising long term rates yet the economy is shrinking and short term rates remain low? Equity markets feel extremely vulnerable to me as their confidence in Central Banks appears to be wavering and this is very scary for equities
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