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Jul 1 2015 at 4:34 PM | Updated Jul 1 2015 at 4:34 PM
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The economic charts investment pros are watching
The Australian dollar, wages, bonds and unemployment are among the themes being watched by fund managers
and economists. Jim Rice
The new financial year has begun entrenched in global
uncertainty.
The headline act during the past few months has been Greece's
messy negotiations with creditors, but the lift-off for United
by Vanessa
Desloires
States interest rates is also drawing closer.
At home, the Australian sharemarket has stemmed the losses from the sell-off in the
big four banks, which was spurred on by the threat of increased capital
requirements. But investors still have concerns the Reserve Bank of Australia may cut
interest rates again if levels of business investment do not improve.
With these factors as a backdrop, some of Australia's top fund managers, economists
and analysts have their attention on a wide variety of financial data that will influence
markets in the new financial year. RELATED ARTICLES
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The movement in the Australian dollar is high on Clime Asset Management chief
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"It's my strong belief that the Australian dollar needs to weaken to below US70¢ if
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"Indeed, weakness against all currencies of our major trading partners is required. A
cursory look at [the Australian dollar trade weighted index] shows that our currency
remains elevated," he said. |
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The economic charts investment pros are watching | afr.com
Alphinity Investment Management portfolio manager Andrew Martin said negative
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LATEST STORIES
revisions in the resources sector had driven the 2015 financial year to be one of no
earnings growth on the Australian sharemarket. "Given the market price-earnings rating is a bit above long-term averages, we think
some positive growth is needed to push the market forward from here. This will be
helped by a weaker Australian dollar and company productivity initiatives," he said. Three of Australia's top economists, Saul Eslake, CommSec's Craig James and ANZ's
Warren Hogan, are all looking at Australia's unemployment trend to guide interest
rates, the Australian dollar, consumer spending, economic growth and the
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"At present, there are early signs that the jobless rate has peaked," Mr James said. "If this indeed turns out to be the case, then we should be confident that the nonmining recovery is gaining traction," Mr Hogan said.
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"It will also rule out the need for further rate cuts from the RBA ... it will be a signal to
FX [foreign exchange] markets that the Australian dollar is supporting the economy
and significant further depreciation is not likely."
NAOS Asset Management chief investment officer Sebastian Evans said Australian
wage price growth was a useful indicator for consumer and business confidence and
the outlook for interest rate levels. "We believe they will continue to fall to offset wage price deflation against a backdrop
of household debt to disposable income ratio, which remains above 150 per cent as
the RBA tries to stimulate domestic economic activity," he said. Macquarie Securities Group head of economic research James McIntyre said weak
wages growth and the shifting industry composition of Australian jobs were weighing
on the pace of Australian household paypackets. "At present, the slowdown in household income growth is being offset by interest rate
cuts and wealth effects from rising asset prices. To sustain spending, a pickup in
income will be needed, or the RBA will need to further support spending through
lowering rates to reduce debt-servicing costs," he said. Global bonds are also on many of the lists of economists and fund managers alike, as
volatility increased on the back of a European economic stimulus program and a
move towards higher interest rates in the US. TD Securities head of Asia Pacific research Annette Beacher said Australian
government two-year bonds were still too attractive for global money, and the net
yield keeping a floor on the Aussie dollar, and would see it remain above US75¢ by the
end of 2015. K2 Asset Management portfolio manager Jeff Thomson said US bonds were a focus,
particularly with the second-half big-ticket item of a US interest rate hike. "Bonds look especially vulnerable to any upside surprise in inflation and/or
reacceleration of growth, which means rates go up further than is currently
expected," he said. "Given historically low yields and tight spreads, the risk/reward for bonds looks
unattractive, and perhaps now reflects a degree of complacency and overconfidence
in central banks." WaveStone Capital principal Raaz Bhuyan said the US unemployment rate at 5.5 per
cent, after reaching a peak of 10 per cent in 2009, was hardly a level requiring the
monetary accommodation now in place. http://www.afr.com/markets/the-economic-charts-investment-pros-are-watching-20150... 3/07/2015
The economic charts investment pros are watching | afr.com
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"Any normalisation in the rate environment will have a bearing on equity markets, in
that performance will be driven by changes to companies' earnings and returns
rather than a PE re-rating across the market," he said. However, Tim Carleton, Auscap Asset Management's portfolio manager, had his eye
on China, arguing a big risk to the Australian economy was a recession in China,
fuelled by an accumulation of bad debts against uneconomic property and
infrastructure projects. One measure on Mr Carleton's radar is five-year Chinese government bonds, which he
said were "slightly elevated". "A rising line indicates that the credit market is assessing that the risks of default are
also rising, which we think is worth paying attention to," he said. RECOMMENDED
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