Note from MD: RBA holds rates but markets show no reprieve

The RBA decided to once again leave rates on hold, marking the third month in a row without a hike or a cut. The RBA has cited greater uncertainty around China, and the effect this could have on the Australian economy, especially in a higher interest rate environment, as reasons for a continued finger-on-the-pulse approach to monetary policy.

The RBA decided to once again leave rates on hold, marking the third month in a row without a hike or a cut. The RBA has cited greater uncertainty around China, and the effect this could have on the Australian economy, especially in a higher interest rate environment, as reasons for a continued finger-on-the-pulse approach to monetary policy.

This did not stop the ASX pulling back yesterday, with the XJO losing 1.3%, while resources copped it particularly bad as the XJR dropped 2.5%.

The S&P 500 hit a four month low overnight and falling 1.4%, as strong American labour market data further compounded fears of the Fed having to keep rates higher for longer. Bond yields surged, with US 10-years briefly creeping above 4.8%, while the VIX ticked over 20 – its highest level since May. The Nasdaq also lost 1.8%, and the Dow Jones 1.3%.

The Australian dollar tumbled more than 1%, briefly dipping below US$0.63. Bloomberg’s dollar spot index, put on 0.2%. The dollar has been on a tear recently, which is hurting commodity prices around the world, but a weak Aussie dollar gives Australian resources companies a little buffer in a situation like this.

Global commodity prices continued a slight decline, with gold trading around US$1,840/oz. Copper is staying afloat at US$3.60/lb, while silver continues around US$21/oz.

The price of oil has been showing no signs of slowing down, and continues to hover around the US$90/barrel mark. Despite the recent turmoil that is causing China’s growth story to falter, Goldman Sachs noted in a recent report that their demand for copper and oil is still very strong.

The XJO continued to trend lower this week, and it is today trading around just above 6,880. It is still well above both its 52 week low of 6,411, but has broken below its previous 13 week low of 6,998.

The XJO was sitting around 6,898 just before 12pm – noticeably lower than both its 200 day weighted moving average of 7,217 and its 50 day weighted moving average of 7,157. The index’s 52 week high currently stands just over 7567.

One fund manager with his finger on the market pulse is Andrew Brown, Executive Director at East 72 Holdings Ltd.

Next Friday, 13th October at 12pm (AEDT) in The Insider: Meet the Fund Manager webcast, Andrew will discuss his counter-cyclical investment strategy and his East 72 Dynasty Trust, a wholesale unit trust focused on investing in family controlled companies. He’ll also discuss his three favourite stocks and views on the current market. To join us for this live session, click here.

You should only act on the information we provide if you are confident that you fully understand what you are doing. Past returns do not always indicate future returns, and it is also possible to make significant losses. There is always a risk of loss when investing.

 

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