Quick Bites | A Few Thoughts on a Busy Market
It might be mid-winter, and most eyes are on the World Cup soccer, but the equity market is busy as well. Today the Bank of Japan raised interest rates 25bp to 1.0% (the highest rate since September 1995 – I’ve got colleagues at Clime who weren’t even born then!). Later today, the RBA is almost certain to leave rates unchanged after three rate rises earlier in the year. Trump and Iran have apparently agreed to a Memorandum of Understanding which will re-open the Strait of Hormuz and allow oil and gas to flow. And we’ve seen the remarkable IPO of SpaceX in a dream debut that has delivered healthy gains to the Elon true believers.
US tech truly leads the World – each company bigger than Aust’s GDP
Source: Bloomberg
The US market has enjoyed excellent returns after a stellar reporting season. The Australian market – not so much. We have too little tech, too much old school financials, too much over-regulation and compliance, and too few truly innovative rising stars.
US benchmark index is outperforming Australia’s by more than 20% over last 12 months. The ASX 200 up 3.6% over the last year, S&P 500 up 26.3%. We are becoming uncompetitive. Raising taxes on capital gains and discouraging entrepreneurship is not the answer.
Source: Trading Economics
Source: Trading Economics
It will be interesting to watch the effect of the US Iran agreement and observe whether it brings down the oil price to pre-war levels of around $70/b (presently around $80/b and around $105/b a month ago).
Source: Yardeni
While the decline in the oil price will be very welcome, the most auspicious factor in driving markets to new records has undoubtedly been the surge in US corporate earnings, and the future looks like it will continue to be firm.
Source: Yardeni
Australia will have to keep faith with the Socceroos, because there will not be much joy from either the toxic political arena, consumer confidence measures which are at 50 year lows, productivity enhancements (non-existent) or the housing market (unless you are a patient buyer on weakness – which is surely coming). Fortunately, commodity markets (apart from oil) are showing resilience – especially copper which remains one of our key picks. It is no happy accident that BHP is now earning more from copper than from iron ore, but a smart strategic pivot which was very well timed.