Japan weighs on Australian market
The Australian market has not performed well during the last few weeks as Japan embarks on a program of massive quantitative easing.
This is contrary to the performance of other markets such as the S&P500 which has made new highs. The Nikkei 225 in Japan which has closed up four out of the last five weeks. Even Europe and other Asian markets have rallied off their lows.
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Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 25 Nov 14
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The Australian market has not performed well during the last few weeks as Japan embarks on a program of massive quantitative easing.
This is contrary to the performance of other markets such as the S&P500 which has made new highs. The Nikkei 225 in Japan which has closed up four out of the last five weeks. Even Europe and other Asian markets have rallied off their lows.
Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
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Duration 03:16
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Aussie dollar surprises market
Duration 03:10
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Duration 02:31
This is contrary to the performance of other markets such as the S&P500 which has made new highs. The Nikkei 225 in Japan which has closed up four out of the last five weeks. Even Europe and other Asian markets have rallied off their lows.
So what’s pulled the Australian market down? Three things:
- Banking shares have dropped after going ex-dividend
- A bunch of money is sitting waiting for the Medibank float
- Japanese investors are taking profit made on currency gains as the YEN weakens.
Also last week the People's Bank of China cut the benchmark interest rates on Friday after calling for lower financing costs earlier.The reduced lending rate will mainly benefit the larger, typically state-owned firms that borrow from banks. The financing costs of smaller firms, which borrow from the shadow banking sector, will not be affected.
Whilst the rate cut lowers the cost of borrowing, we don’t believe it will be much help for GDP growth given the limits on bank lending remain unchanged.
Finally the flash PMIs announced last week for Europe, Japan and China were weaker than expected.
Whilst Japan’s manufacturing PMI edged lower, it still indicated that activity in the sector should continue to recover. Another positive indicator for Japan was that its trade deficit also shrank in October and is set to narrow further due to falling energy costs.
China’s flash PMI also edged down as manufacturing activity looks to have cooled. However, the reading is not cause for significant concern given domestic demand appears to have held up reasonably well and other proxies for activity in China suggest that growth in the wider economy stabilised in October.
The fall in the euro-zone composite PMI was a serious blow to hopes that the recovery would resume towards the end of the year. It is now at its lowest level since last July. The fall in Germany was particularly disappointing given hopes that economic weakness around the middle of the year would prove temporary.