Aussie market maintained the negative sentiment from last week to deliver another big negative day as banks were hammered. Globally it’s all about the US Fed and what tone Janet Yellen is going to take overnight. We expect to get FOMC chairwoman to become more hawkish than in March and prepare the market for the June hike. We expect a June and a Dec hike in 2016. The world is waiting to see “what the Fed are they going to do?”….option (1) “Return of the Currency Wars”….or option (2) “Interest Rate strikes back”. Big picture logic suggests they should move towards option (2) but vested interest groups and risk averse mentality suggests they are likely to move towards option (1). We will know what the market thinks by the movement in the currency. Now it’s time to stand on the side and watch as US Fed sets the scene for FOLO (i.e. Fear Of Losing Out) or FOMO (i.e. Fear Of Missing Out)!!! (VIEW LINK)
I can't help but feel the market could react poorly either way. If hawkish, worry about rising rates. If dovish, worry that the Fed has no faith in the recovery.
I agree. The VIX and the corporate profits are all pointing to market looking for a reason to fall over. FOMC flip flopping seems like a good enough trigger to push this market into another profit taking slide.
Definitely feels that way...
Headlines today = Housing/Apartments looking overvalued (40% in some cases), lists of suburbs being blacklisted by lenders, Bad & Doubtful Debts on the rise, Bank margins under pressure, dividends under pressure, AUD too high and could start to impact the transition away from mining.
Funnily enough market can get too negative from too positive region after a few sentiment killer articles. Banks are moving mainly on macro factors and they will move as US Fed changes. Banks will come back in favor as the market risk/return mix matches up. If the US Fed flags no rate changes, AUDUSD goes to 80 and RBA cuts rates...then Banks are going to move 10-20% higher. We live in a fickle world where risk and return are a relative measure that can change dramatically within a few days.
I agree that the outlook for Australian equities in patchy over the next six months or so, however looking ahead 12 months, for various reasons I feel the outlook is more positive for local stocks. There is a reversal theory regarding Australian and US equity and property markets: the argument goes that when US equities outperform Australian shares for several years, it will usually mean that Australian shares will do well in subsequent years. Australian equities haven't gone anywhere for ten years (at least that is true for the index, anyway) however US stocks have done overall quite well over the same period. So conditions might be right for a reversal, with Australian stocks outperforming US stocks for a few years. I think the same could be true for property markets in both countries: thanks to low interest rates and relatively low rates of unemployment, Australian property has outperformed US property over the past ten years, but now with low unemployment in the US and the rising minimum wage in many US states, property in the US might be set for a significant rebound.