Australian Markets Weekly – 30 May 2016

The past week has seen interest rate markets continue to receive warnings from various Fed speakers – including Fed Chair Yellen – that US interest rates are likely to rise in the next few months.

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Good news week

  • Today’s weekly looks at some of the positive news that exists despite all the negativity around at the present time. This includes falling unemployment rates in the US, Europe, Japan and Australia and the fact that the Fed thinks the US economy is performing well enough to justify a further modest rate increase in the months ahead (June or July).
  • With US interest rates rising modestly, this should keep the $A constrained in the low US$0.70s in the near term, providing support to the Australian economy’s transition and reducing pressure for the RBA to consider another early rate cut. Indeed, NAB remains to be convinced of the need for a further rate cut and certainly does not foresee the significant rate cuts in coming months predicted by many commentators. This would likely require weaker labour market indications.
  • In Australia, many eusinesses we have been speaking with indicated surprise about the RBA’s recent interest rate reduction. This likely reflects the better performance of the Australian economy outside of the mining sector. A relatively small number of businesses have indicated some impact from the Federal election campaign.

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