20 Sep 2013
• The Australian share market moved sideways for much of the week as the markets both locally and globally awaited the US Federal Reserve’s announcement.
• Markets globally were surprised and shocked as the Fed chose not to start cutting its stimulus measures, against all expectations.
• Equity markets globally were boosted as a result, which also saw our markets open very strongly on Thursday.
• Markets globally were boosted earlier in the week as Larry Summers, potential candidate and Obama’s preferred choice for the chairmanship of the US central bank, pulled out of the running. He is not well liked by the markets, well his weren’t policies anyway….
• The Aussie market also reacted positively to the news with the market reaching a 5 year high, as did European equities.
• In stock news, Westfield was in the news this week for property sales both locally and overseas. The overseas sale was non-core assets in the US. The local sale in WA was at a surprisingly large premium.
• Gold and oil prices continued to subside as conflict and geopolitical issues went out of the headlines as all the focus was on the US central bank’s announcement.
• The Australian dollar spiked yesterday, post the US central bank’s announcement, to its highest level in more than 3 months. The dollar had been rising prior to this due to foreign buying pressure, with the Aussie now at 95 US cents.
• Whilst the US central bank’s decision to not commence the first cut to its stimulus measures caught markets completely off-guard, the poor recent economic news flow meant the decision probably should’ve been expected with the benefit of hindsight.
• US retail sales were lower than expected and a keenly followed consumer confidence index fell.
• The other key note from the US central bank’s announcement was their guidance as to how quickly the stimulus may be reigned back in (very slowly) and how long interest rates will be kept at virtually 0% (longer than originally planned) – a big positive for share markets.
• The Australian residential housing market continues to rise strongly with prices up over 8% since the beginning of the year – the strongest growth has been in NSW.
• Some of the lowest mortgage interest rates of all time are helping feed the boom as is the expectation that the RBA will keep rates lower for longer and may be forced to cut rates further.
• The rising Aussie dollar is not assisting the RBA whatsoever and will be very concerning to them at current levels. Looks like they will have to do more of the heavy lifting (ie. cutting rates).
• Due to changes as to how the federal Labor party elects its leader, the new opposition is on hold for a few more weeks. It will be the first time a ballot is used to select a Labor leader.
• The US central bank has damaged its reputation slightly with markets now more confused than ever. Whilst they hadn’t previously committed to the 1st round of stimulus cutting in September, their comments and publications to date implied otherwise.
• The RBA is on a collision course with APRA (government body who regulates the banks and the broader health of the financial system) with both in total disagreement about whether the housing boom is a concern (APRA for, RBA against).
• No one should really be surprised by this (even though it’s in the news) given it’s the RBA’s role to hose down fears/expectations of a bubble and APRA’s role is to keep the banks in check when it comes to their lending standards and the risks they’re taking.
• As a result, the big 4 banks might find themselves getting a friendly phone call from APRA (if they haven’t already) asking them to constrain their current excitement towards lending.
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