[
B U S I N E S S
&
F I N A N C E
] THE WEEK THAT WAS
MARKET UPDATE FROM THE BIG GUNS
Chris Harris is from Ord Minnett in Buderim
T
he Reserve Bank governor Glenn Stevens recently delivered a statement to Federal Parliament’s House Economics committee and answered questions from MPs. To summarise, Stevens is content with the current policy stance, given that growth here is likely to be “close to trend” and inflation “consistent with target”. But he is very wary of lingering risk factors. So, let’s look at this statement through the prism of interest rates, the global economy, the Australian dollar and a mining investment boom. On interest rates, Stevens indicated that the bank is prepared to “respond to
significant deviations from the central outlook, to the extent that it was prudent and possible to do so”, within the inflation targeting framework. In summary, the RBA is unlikely to lower interest rates in the near term and would consider such action if a material change in circumstances compelled them to do so. In relation to global economies, Stevens covered familiar territory on conditions in China (growth now more sustainable), Europe (the problems will take a long time to resolve), and the US (moderate pace of growth). On the domestic economy, he reinforced the point that the official inflation forecast was unchanged. The governor described himself as “cautiously optimistic”, but also that he was wary of lingering risks, particularly in Europe. In regard to the Australian dollar, Stevens described the level of AUD as “a bit on the high side” relative to past relationships. He does not see RBA intervention as a solution to reducing it, and is unconvinced by the
I told my dentist my teeth look yellow, he told me to wear a brown tie
arguments put forward to do so. Last but not least, on the mining investment boom, Stevens says the peak of the boom, the highest in more than a century, will occur in “the next year or two”. This is consistent with earlier official comments that the peak in the investment had come forward somewhat. It is way too early to call the “end” of the mining boom, although it has become clearer in the middle distance. In the meantime, mining investment will remain a key driver of GDP growth this year and next. The negative impact of the deteriorating economic fundamentals, however, (higher AUD, lower commodity prices, softer demand, higher construction costs, tax and regulatory changes, etc) is becoming more obvious as projects are put on ice. Chris Harris is a representative of Ord Minnett Ltd, AFS licence 237121. This article contains general financial advice only and does not consider your personal circumstances; you should determine its suitability to you. Before acquiring a financial product you should consider the relevant product disclosure statement. Past performance is not a reliable indicator of future performance.
TOP BULLS
PRICE
RISE
Dart Energy Ltd
$0.19
16%
Seven Group Holdings
$8.12
12%
Charter Hall Group
$1.055
7%
SP AusNet
$0.71
7%
Ramsay Health Care
$24.90
5%
WORST BEARS
PRICE
FALL
Boart Longyear
$1.41
41%
Ramelius Resources
$0.41
23%
Imdex Limited
$1.32
21%
Discovery Metals Ltd
$0.965
20%
Panoramic Resources
$0.535
17%
WEEKLY
CHANGE
All Ords
4339
-0.8%
Dow Jones
13090
-0.5%
FTSE100
5711
-1.1%
NIKKEI
8839
-2.5%
Hang Seng
19482
-2.0%
WORLD INDICES
HOT TIP BUY – Dominos Pizza Enterprises (DMP) continues to deliver strong earnings growth with FY12 NPAT growing 25 per cent. Return on equity and net cash has doubled to $26.3 million. Signs are it will continue to generate strong cash flow, impressive return metrics and deliver our forecast 17 per cent EPS compound annual growth. Price target $10.29. Source: Ord Minnett Buderim
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9/4/2012 3:28:53 PM