I appeared on Channel News Asia again this morning at 6:20am SGT, via Skype. My questions and my responses in the form of brief notes are below:
Q1. Global stocks rallied after last week’s disappointing US jobs report. Are we back with ‘bad news is good news’ for equity markets?
The main theme here is the Federal Reserve and when they are going to lift interest rates for the first time in nine years. The latest US jobs report has forced investors to reconsider the timing of an interest rate rise, with a 2016 hike now looking more likely.
As a result of new expectations, we are now seeing a positive response in stocks. Recent rallies is most likely a response to the market being oversold.
Q2. US third-quarter earnings season starts this week. Can it provide another leg up for the market?
I think there is some positive buzz around US stocks at the moment, however there is some caution around the strength of the US dollar. Due to the appreciation of the US dollar this year, any leg-up in the market is probably going to be provided by smaller companies which don’t have as much international and therefore currency exposure.
It is estimated that as much as 45% of S&P 500 company revenue comes from outside the U.S., therefore the US dollar strength could adversely weigh on earnings.
Q3. The Australian market is down 4% year to date. What can we expect in the fourth quarter?
Similar to US stocks, there is a little bit of optimism about ASX stocks. So far it has been able to stay above the key 5000 level. This level remains key. Psychological level – 4950 vs 5050 and the values.
When looking at the ASX200, it really comes down to the top 20 stocks and their fortunes.
Some of them are really struggling and trading at multi-year lows including BHP, RIO ORG, WOW and WPL, not to mention the banks who have faced selling pressure this year on the back of regulatory changes.
Q4. Will Australia’s central bank keep interest rates on hold at its policy-board meeting today?
It is very likely they will hold yet again. Some suggest a 30% chance of a cut but most are expecting no change. Some recent data (new car sales are strong, inflation is picking up, ANZ job advertisements was stronger than expected) suggests that the RBA will sit tight
Warnings that cutting the official cash rate below 2 per cent would be unlikely to spur additional economic growth and may even exacerbate already sky-high debt levels.
While expectations for any change on Tuesday are near zero, many analysts will be on the look-out for any suggestion in the board’s statement that monetary policy could be cut in coming months.
Q5. The US Federal Reserve’s short-term pause generated an Australian dollar rally. Is the risk still to the downside for the Aussie?
There is definitely still the risk but it is being held up very well by support at anything around the 70 cents level.
Plus you have new speculation about what the Fed will do has all of sudden placed renewed upward pressure on the Australian dollar.