There’s been some economic data released this week, which further highlights that outside the mining sector growth in our economy remains subdued. We saw house prices continue to soften in December and household credit growth slowed further suggesting that there is still a preference for people to save rather than spend. In addition we have again seen the Australian dollar appreciate towards the $1.07 mark, which for anyone travelling abroad is great news, but not so much for our export industry (excluding mining) which will continue to feel the pinch.
What this means is that the likelihood of further rate cuts this year has increased, with the first of these potentially coming next Tuesday when the RBA meets for the first time this year. As discussed in last week’s post a falling interest rate environment will mean that Australian Government Bonds will continue to perform well, which we have good exposure to via the Australian Fixed Interest fund.
If we also take a look back in history, the disparity between deposit rates and dividend yields tends to be a strong indicator for momentum shifts in the market. When the cash flow provided by shares increasingly outstrips that offered by bonds and bank deposits we traditionally see a positive momentum shift on the market. As such the current interest rate cycle will continue to be a theme we keep a close eye on.
As always it is a pleasure to provide you with our insight and should any issues require further clarity please feel free to contact the office
