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. Oil prices rebounded slightly after hitting financial crisis lows overnight. Will prices stabilize or do you expect further sell-off?
It is not unusual to see periods of consolidation in strong rises and falls and overnight could be just that – a short term consolidation during a strong price fall.
We would need to see a few more steadying days, perhaps more than 1 week before we believed that it was going to stabilize and bottom out.
The fundamentals would suggest that oil might have a little more to fall despite how difficult that is to believe.
Q2. How are Aussie shares likely to trade today given the recovery in oil prices?
The ASX fell heavily yesterday down through a key level at 5000 down to nearly another two year low.
I would expect a rally today with the DJIA up 100 pts and oil breaking a 6 day losing streak. We have also seen a small rise in the overnight futures so I would expect a reasonable rally today – some bargain hunting as some people like to describe it.
Every year since 2009 the ASX has experienced a strong surge higher so these low levels might just be the catalyst to that surge.
Q3. About 80% of analysts believe that the Fed will hike rates when it concludes its policy meeting this week. Do you think there’s a chance the Fed will surprise markets by keeping its short-term rate unchanged?
There is a certainly a chance however unlikely. The Fed throughout this year have declared that the timing of the first rate rise is not as important as the subsequent path that they take.
They have spent some time stressing this point.
The last couple of months of data from the US has been strong and positive especially the last two months of jobs data. Many believe this has given them the green light to move.
I expect significant volatility when they announce their decision and I wouldn’t be surprised to see the US dollar sold off strongly afterwards. Then I would expect the strength in the US dollar to return and potentially carry through to most of 2016.
Q4. Both the RBA meeting minutes and Australia’s mid-year economic outlook are set for release today. Do you think there’s a chance the RBA may ease policy to support the economy?
Similar to most central banks, the RBA takes a long term view of the economy, rather than the day to day that most people tend to concentrate on.
Throughout next year, it is quite likely the RBA will move again and many expect that to be lower as Australia continues its transition out of the mining boom.
Q5. What’s your outlook for the Aussie dollar?
I have been quite bearish the Australian dollar for some time however it has remained quite resilient over the last few months trading above the key 0.7 level and more recently the 0.72 level over the last few weeks.
When you consider the outlook for the Fed and the path they are taking over the next 12 months and then compare that with the RBA’s path, there is a clear divergence.
This will likely lead to further US Dollar strength and a further depreciation in the Australian dollar. You can easily see the A$ trading at well below 0.70 in 12 months’ time, unless we see the RBA change course with either rate rises or significant change in tune.
6. What’s your outlook for Australian markets in 2016?
I expect a steady rise in ASX equities next year. We have seen a steady rise every year since 2009 with the exception of this year when the ASX has slowly declined.
I wouldn’t be surprised to see some further consolidation and sideways movement like the last few months before some rise in the 2nd half of the year.