ASX 200 and Interest Rates

[DavidK]

Hi,

I'm interested in peoples opinion about the relationship between the (RBA) overnight cash rate and the ASX200 -INDEXASX:XJO. Can you say from a liquidity point of view that the ASX200 goes up when interest rates are reduced ?

Also, I was looking for evidence of INDEXASX:XJO decoupling from the Dow (INDEXDJX:.DJI) , but it seems what ever the American index does the ASX200 does also.

ANy comment ?

regards
David

 

[shouldaindex]

What's the theory on a 60 point spike in the ASX based on a cash rate move?

That can't be good for when cash rate is back up to 4%, 5% in the future, applying the same principle.

 

[burglar]

What's the theory on a 60 point spike in the ASX based on a cash rate move?

That can't be good for when cash rate is back up to 4%, 5% in the future, applying the same principle.

Which principle: "What goes up, must come down"?

 

[PinguPingu]

11 straight days of gains if today's hold....

TBH, I don't think we'll see a rate rise for at least 12-18 months. Sure, we're at risk of imported inflation, but that is actually one of the hardest for producers to pass on to the consumer. Where is aggregate demand going to come from in the Western world? I do not think global QE and rate cuts will 'cut' it (apologies). The RBA is simply reacting to the increased global currency war.

http://www.project-syndicate.org/co...nd-fiscal-stimulus-by-nouriel-roubini-2015-02

Simply put, we live in a world in which there is too much supply and too little demand. The result is persistent disinflationary, if not deflationary, pressure, despite aggressive monetary easing.

The inability of unconventional monetary policies to prevent outright deflation partly reflects the fact that such policies seek to weaken the currency, thereby improving net exports and increasing inflation. This, however, is a zero-sum game that merely exports deflation and recession to other economies.

 

[notting]

It's about here in the recovery that the idiots buy.
The markets done it's thing since the GFC.
The US market is starting to stall with the $ too strong.
Europe looks like doing a 20 year stint going nowhere.
We are probably going to see some kind of Asian crisis within the next 18 months, because China is not going to stimulate like it used to and it's economy will continue to be guided gently into the dirt.

All the self managed Superfund fools and old despairing bank deposit holders worrying about getting no interest out of hopelessness now flooding into stocks desperate for yield. "Oh well if they go down, we will at least get the yield. We can hold till they recover."
They are buying the value traps and stocks that have already run beyond their worth as the economy starts to tip over.
It's the classic Euphoria, sweep up the paper at the end and burn it scenario.

 

[PinguPingu]

It's about here in the recovery that the idiots buy.

Agree, notting. But not here, these are the early birds (the last week or so). First will come the consolidation for a month or so, next will come the next rate cut in April/May, THEN all the retail will begin to break the huge allocation of cash still in TD's and we will really see euphoria, 3/4 of the way through the year I crystal ball whatever black swan event that will sweep out everyone.

 

[notting]

First will come the consolidation for a month or so, next will come the next rate cut in April/May, THEN all the retail will begin to break the huge allocation of cash still in TD's and we will really see euphoria, 3/4 of the way through the year I crystal ball whatever black swan event that will sweep out everyone.

Well ya'd wanna be nimble with all the traders on that same page having priced in the next rate cut about 2 days ago!
No one wins in currency wars.
The prize for first to the bottom isn't one for the people, only the short term politicians working for their own seat.
Case in point - BCI up over 11% today with a dividend yield of 58% at yesterdays closing price. That simply looks awesome against 2% at the bank.

 

[DavidK]

Thanks folks,

very useful. Any comment about ASX decoupling from the DOW, or otherwise ?

regards
David

 

[burglar]

Thanks folks,

very useful. Any comment about ASX decoupling from the DOW, or otherwise ?

regards
David

If they were travelling in tandem,
how would you know if they were coupled or not?

When wagons are coupled, there is visible evidence that the "pin has dropped"!

 

[ThirtysixD]

Hi,

I'm interested in peoples opinion about the relationship between the (RBA) overnight cash rate and the ASX200 -INDEXASX:XJO. Can you say from a liquidity point of view that the ASX200 goes up when interest rates are reduced ?

Also, I was looking for evidence of INDEXASX:XJO decoupling from the Dow (INDEXDJX:.DJI) , but it seems what ever the American index does the ASX200 does also.

ANy comment ?

regards
David

I ran some tests last year to examine the correlation between market returns and interest rates on the ASX. I ended up finding a weak negative correlation between interest rates and market performance.

Its fairly intuitive to say that markets do perform better in periods of low interest rates because participants are forced into riskier asset classes, but the relationship I found was not as strong as others have observed in international markets.

The Australian capital market is probably too easily influenced by outside factors like commodity prices,foreign rates, china....


I don't normally pay much attention to the DOW but the ASX has been decoupled from US markets for quite a while.

 

[Dona Ferentes]

 

[KevinBB]

View attachment 149793

These are two very interesting charts.

The charts tell me that when interest rates have risen very quickly in the past, for the first three to six months or so, the market says "all ok, nothing to see here", but then commences a steady sell-off.

I'm putting the three month delay down to the time lag between interest rates rising and companies making public their financial reports.

Still just under 50% cash in my ASX stock portfolio, waiting to see how the rising interest rates are dealt with by our leading companies.

KH

 

[Dona Ferentes]

And in a year of rising interest rates, sectoral dispersion was evident for the ASX. Slowing economies and War also contributing factors.

S&P/ASX 200 sector performance 2022 (%)​

Index return: -6.32

Energy
+38.6
Utilities
+23.2
Materials
+4.5
Financials
−3.9
Industrials
−6.6
Consumer staples
−8.3
Health care
−9.0
Telecommunications services
−14.3
Consumer discretionary
−23.7
A-REITs
−25.1
Information technology
−34.8
Source: Bloomberg