The Australian market performance has been flat this quarter with the S&P ASX200 closing at 5,395, notwithstanding individual stocks within the index have experienced significant volatility.

Australia

• The Reserve Bank of Australia (RBA) kept the cash rate at 2.50% pa for the quarter stating current policy stance was likely to be appropriate for some time yet
• The labour market remains subdued with moderate growth predicted in the coming months. The continuing spare capacity in the labour market is consistent with low growth in wages which is expected to continue for sometime
• The Australian dollar continues to be problematic for the RBA. Governor Glenn Stevens has been delivering speeches highlighting the disparity between current AUD exchange rates and the historical long term average. While Australian interest rates remain significantly above international interest rates then the Australian dollar is unlikely to weaken significantly in the short term
• The inflation rate rose slightly during the quarter to 2.9% pa, still within RBA target range of 2 to 3% and is expected to moderate in future periods and allow the RBA to maintain current interest rate policy
• The Federal Budget in May was poorly delivered and implemented resulting in continuing market uncertainty

US

• The US S&P 500 and Dow Jones Industrials continue to rise strongly
• The US economy is showing signs of accelerating and recovering from recent severe winter weather
• The FED continues to reduce the quantitative easing stimulus at each meeting but continue to reiterate that interest rates are unlikely to move for some time to come as US unemployment remains elevated and wage growth continues at low levels

Europe

• The Ukraine/Russian dispute continues to escalate and continued fighting throughout the Middle East has heightened tension
• EU Bank Chairman Mario Draghi has proceeded with unprecedented techniques in order to stimulate EU growth in the form of negative interest rates
• The long term structural economic hurdles persist including high unemployment and Government debt levels

China & Japan

• Chinese economy continues to grow at a reported rate of 7-7.5%pa
• The implications of the November 3rd plenary session of the 18th Party Congress continue to impact the Chinese economy which focused on
• Lowering house prices
• Containing Credit growth which has contracted for most of the last 12 months but surged in June
• Japan, Australia’s largest trading partner, has hiked the consumption tax rate dramatically from previous levels and we wait for the impact on GDP growth
• The Japanese have implemented quantitative easing program to attempt to boost their economy

Market Themes for 2015

For financial year 2015 we are looking for catalysts to drive markets to higher levels:

• Increasing business confidence and profits
• Increasing RBA support for Australian market transition away from mining
• Strengthening US growth proving stimulating actions are no longer required
• A stronger US dollar
• Stabilisation in the Chinese economy
• Liquidity support from both Japan and the Europe

Also destabilising events that may impact sharemarkets such as:

• Lower US growth and emerging inflation
• RBA intransigence on rates
• A resilient Australian dollar
• Intensifying political turmoil
• World political elections
• Continuing terrorist activity in the Middle East and Ukraine

Should you have any queries or want to discuss the above or your portfolios please do not hesitate to contact us.