How Much Faith Do You Have: Will the RBA Cut Interest Rates Again?

Stock markets around the world are still largely shrugging off the potential ramifications of a global pandemic. US markets were closed yesterday (overnight Aussie time). But the major European indices all posted gains.

In today’s action, Asian and Aussie stocks are in the red. But not by much.

That’s mostly due to investors’ faith that the world’s central banks will pull enough levers to keep any pullback from becoming a rout.

JP Morgan and Moody’s are among the big names all but certain that the RBA will cut interest rates again heading into autumn.

Our view is that we will probably see another rate cut here, that certainly the impact to the Australian economy is going to be significant,’ says JPMorgan Asset Management’s head of fixed income Bob Michele. (Quoted from the AFR ).

Then there’s Moody’s. The ratings agency believes the impact from the virus and China’s slowdown will lop 0.3% from Australia’s GDP. Moody’s adds (from The Age ):

Our forecasts for improving growth assume that interest rate cuts from the Reserve Bank of Australia will help the housing recovery as well as business activity.’

Ah. Our good old housing market. The second most expensive in the world. What would we do without it?

But Aussie investors aren’t the only ones who can anticipate more cheap money ahead.

As Bloomberg reports :

China on Monday offered more funding to banks and cut the interest rate it charges for the money. Singapore has also promised a “strong” package of budget measures and central banks in the Philippines, Thailand and Malaysia have cut interest rates as Asian economies grapple with the virus-induced slowdown.

The world’s central banks are doing their best to get ahead of what could be a huge hit to the global economy. And for now investors are appeased.

If China’s extraordinary efforts to contain the coronavirus prove effective — and the rest of the world manages to hold it at bay — until a vaccine is widely available, lower interest rates and additional quantitative easing (QE) may be enough to keep the party going.

But that’s not what the passengers in the first car of this slow motion train wreck will tell you.

Invest with care.

PS: The Rum Rebellion Editor, Vern Gowdie believes most investors should dump all of their stock holdings. And it has nothing to do with the coronavirus. Atop his broader sell recommendation, there are five stocks in particular he believes you should sell today. You can get the details in Vern’s free special research report here.

Bernd Struben is an Editor of The Rum Rebellion. In this capacity, he has access to one of the most intriguing and powerful networks of practical investment insight anywhere in the world.

Bernd has worked on four different continents, and has more than 20 years of professional finance, editorial, and management experience. He holds a degree in economics.

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