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February Economic & Market Summary

Sunday, February 28, 2016

Cash

The RBA left the official cash rate on hold at 2% for the 9th successive time at its 2nd of March meeting. The central bank last took action with 0.5% worth of cuts in the first half of last year.

The statement accompanying the decision made reference to the measures taken by APRA to dampen down property lending, particularly for investment properties. Frothy property prices, particularly in Sydney and to a lesser extent Melbourne, has been one factor staying the RBA’s hand from cutting interest rates further. This may now be less of a restraint, allowing the RBA to loosen monetary policy further in order to support the post mining boom rebalancing of the economy should this become necessary.

Bonds

Bonds benefited from the continued risk adverse sentiment in February. This was despite many government bonds around the world (but not in Australia) sporting negative yields. That is investors are, in effect, paying governments for the privilege of lending to them. Bond investors seem more interested in return of their capital than the return on their capital. Expectations of deflation are also a factor; meaning while the nominal return is negative the real return could still be positive if prices fell further than the negative yield. In a world of negative interest rates the 2.5% yield on the 10 year Australian Government Bond doesn’t look too bad.

Australian Equities

Although Australian shares finished in the red in February, there was a meaningful rebound in the second half of the month. At mid-month the All Ordinaries index was down by over 5%. Some recovery in sentiment globally saw investors, who sensed the New Year sell-off as overdone, stepping in and driving the market up. This provided some relief for shareholders of resource stocks, with the ASX 200 Materials sub index putting on 7.6% over the month.


To discuss this further or to speak with a Matrium Financial Services Adviser, contact us today on 02 8861 1840.

 


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