At its meeting today, the Board decided to leave the cash rate unchanged at 1.75 per cent.
The global economy is continuing to grow, at a lower than average pace. Several advanced economies have recorded improved conditions over the past year, but conditions have become more difficult for a number of emerging market economies. China's growth rate has moderated further, though recent actions by Chinese policymakers are supporting the near-term outlook.
Commodity prices are above recent lows, but this follows very substantial declines over the past couple of years. Australia's terms of trade remain much lower than they had been in recent years.
Financial markets have been volatile recently as investors have re-priced assets after the UK referendum. But most markets have continued to function effectively. Funding costs for high-quality borrowers remain low and, globally, monetary policy remains remarkably accommodative. Any effects of the referendum outcome on global economic activity remain to be seen and, outside the effects on the UK economy itself, may be hard to discern.
In Australia, recent data suggest overall growth is continuing, despite a very large decline in business investment. Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend. Labour market indicators have been more mixed of late, but are consistent with a modest pace of expansion in employment in the near term.
Inflation has been quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.
Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 is helping the traded sector. Financial institutions are in a position to lend and credit growth has been moderate. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.
Indications are that the effects of supervisory measures have strengthened lending standards in the housing market. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments. Dwelling prices have risen again in many parts of the country over recent months. But considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities.
Taking account of the available information, the Board judged that holding monetary policy steady would be prudent at this meeting. Over the period ahead, further information should allow the Board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate.
Australian All Ords Index – XAO
March 21, 2017
Current Market Position and Strategy
- We are in a long term bull phase in the Australian sharemarket.
- We expect the market to continue towards our longer term target of - - -
- Most markets around the world are at new all time highs; our market is yet to do so.
- Advisers and clients should be positioned to buy the major dips.
Fig 1 shows that since 2009, which was the low of the global financial crisis (GFC), the Australian share market is moving higher in steps.
Our analysis suggests that the Australian share market should record new all time price highs within the next two years.
We aim to advise you in this newsletter where and when to position your portfolios to take advantage of these expected moves.
Current Market Position
- After increasing almost 22% in value over the past twelve months from the February 2016 low, the XAO is now pausing under the 6000 resistance level.
- The XAO has increased almost 100% in value from the GFC low at 3052.5 which is a natural price barrier, this is the third time we have approached the 6000 area, with a sell off occurring on the previous two occasions.
- At this point the market is expected to pause and turn down into - - - -, with line P - Q expected to support this anticipated price decline.
- A long term buying opportunity is expected to take place in - - - - 2017 as at this point both long term and intermediate term cycles will be synchronized in the upwards direction.
The defined support levels are shown in Fig 2 above.
Levels to Watch
In the event of the anticipated decline taking place, the first zone of support is expected to be at the - - - to - - - - area.
If the - - - - level breaks, then prices could run down to the - - - - to - - - - zone.
We would then assess the mood of the market and look to buy for the next leg up.
- There is a dominant cycle that influences the Australian All Ordinaries Index cycle. (Fig 3)
- The current position of this cycle shows a cycle trough taking place in November 2016 at point X. The next cycle crest is projected to take place in - - - -
- Shorter term cycles are now peaking and it is anticipated that a price decline should take place over the next - - - -, down into - - - - where a very good buying opportunity is expected to occur.
What does this graph mean?
Cycles are present in markets all the time. There are shorter term and longer term cycles. Being aware of these cycles guides us in our decision making process to time purchases and sales in the markets we cover.
At times the markets will bottom or top ahead of the cycle due date. This in itself is a very helpful indication of the strength or weakness of the market being monitored.
It is expected that prices will eventually move up to - - - - level as the dominant cycle crests.
- Speak to your adviser and review your current holdings.
- We recommend taking profits or tidy up underperforming shares during the next 30 days.
- Look to make long term additions to portfolios in - - - - 2017.
Momentum Wealth Management and its advisers are Authorised Representatives of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429. The information (including taxation) in this website does not consider your personal circumstances and is of a general nature only - unless otherwise stated. You should not act on the information provided without first obtaining professional advice specific to your circumstances.