Likely rate cut to support Aussie shares
Australian shares are likely to be well supported heading into the end of 2019, with another interest rate cut looming this week and the prospect of a US–China trade war to provide a possible boost to Australian exports, according to former Australian treasurer Peter Costello.
Addressing the recent Yahoo Finance All Markets Summit, Mr Costello said there was a “fair chance” of another cut to interest rates at the Reserve Bank’s October meeting this week, which would be supportive to a sharemarket environment that 10 years after the financial crisis was still “booming on emergency interest rates”.
“I think a rate cut would support the markets — markets are high because money is cheap and every time money looks like it’s getting more expensive, the markets start getting volatile, so it might be good for the markets,” he said.
“Recently, for the first time we’ve got back above our 2007 all-time high [in sharemarkets], so it’s higher than it has been for 10 years, but this is still in abnormal conditions.”
Mr Costello said it was important for local investors to have “an Australian perspective” on the issue of the US–China trade war, which could actually have a positive impact on many Australian companies.
“If the trade war means China turns down, that is bad for us, no doubt about it, but it hasn’t turned down,” he said.
“In a funny way, we have actually profited from the trade war — Australia hasn’t been subject to tariffs by the US and we’ve managed to increase some of our exports into the US, like aluminium.”
He added that despite market jitters around a trade war, the Chinese economy was still strong, as reflected in Australia’s export performance.
“Our exports to China are as strong as ever on very good prices — iron ore is near $100 a tonne and coking coal is well over $100 a tonne,” Mr Costello said.
“We are sitting at a pretty sweet spot, and if you want some evidence of that, we are running trade surpluses and current account surpluses.
“There’s a big difference between the US and Australia and that is we run a surplus with China — what motivates US concern about China is the US runs a deficit.”