It’s not that bad

Key highlights:

• Mr Market is gloomy and asking three interrelated questions early in 2016: 1) China – what the heck is going on (We’re also asking that question); 2) Is the US economy slowing and did the US Fed make a mistake tightening in December (our thoughts, No); and 3) Does the ongoing plunge in commodities mean the global economy is weakening further (our thoughts, not necessarily)?

• Australian economy – No news in falling commodity prices. Big questions for 2016 are residential construction cycle and the non-mining economy. We expect RBA to be on hold right through 2016.

• AUD – four year decline probably over and AUD to be between US 65 to 75 cents in 2016

• Bond Yields – Yields falling now but to grind higher through 2016 as Fed tightens

• We also review the Australian data released over the holiday period and preview the week ahead

A fairly crazy start to 2016 although uniformity in that the directional moves in key global markets has been negative. Major stockmarket indices are down 12% in China and 8% in
Australia and the US; Oil is down $4 to US$33; US and Australian 10-year Government bond yields are down 15bps and are now lower than when the Fed hiked in December; and the AUD/USD has slid 3.5 cents to just under US 70 cents.

For full analysis, download report:

• Australian Markets Weekly: 11 January 2015 (PDF, 334KB)

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets

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