Australian Markets Weekly – Offshore investors less negative on Australia

An important week as Australian markets prepare to wind down for Xmas and the summer holidays, with the MYEFO Budget outlook on Tuesday expected to reveal a mild worsening in this year’s deficit to $38bn and to bring to account lower long-term growth assumptions.

By Ivan Colhoun

Offshore investors less negative on Australia

An important week as Australian markets prepare to wind down for Xmas and the summer holidays, with the MYEFO Budget outlook on Tuesday expected to reveal a mild worsening in this year’s deficit to $38bn and to bring to account lower long-term growth assumptions. In other Australian news, the December Board Meeting Minutes are expected to be a non-event, with the RBA seen as comfortably on hold, while the RBA Governor’s annual AFR “Christmas interview” may be released Friday night Australian time. It would not surprise to see the Governor once again comment that the $A is somewhat overvalued, given recent declines in commodity prices.

The big event is of course what is expected to be the first interest rate since June 2006 by the Federal Reserve (6am Thursday Australian time). Markets are most interested in any clues about the further pace of tightening beyond the first move, though in truth the trajectory is likely to be data dependant. In meetings last week with major US investors, we encountered a number of investors of the opinion that US data would continue to surprise markets on the strong side in coming months.

A report on this US marketing trip is our special focus article this week, with investors generally looking for a slow rate rise trajectory from the Fed; less negative on the Australian economy than in recent months as the data continues to surprise; quite pessimistic on the Canadian economy and CAD; looking for the Chinese currency to continue to depreciate; generally happy with the view that the RBA will not cut rates further anytime soon (but many thinking this would be a positive for the $A – NAB disagreed and continued to look for a further decline). We also discuss views about how the US$ will trade out of the first US rate rise.