It was a flat month for the Australian share market, the RBA kept rates on hold, Barack Obama convincingly won the US election and Green Moon won the Melbourne Cup by a length...
The All Ordinaries index finished November marginally down 0.4% at 4,518.00 points. Global shares were mixed with the Dow Jones Index falling 0.5%, the FTSE gaining 1.5%, the Nikkei 225 gaining 6.3% and the Hang Seng gaining 2.0% for the month.
As a result of the Obama US election victory, we see the emergence of yet another financial buzz word..... the fiscal cliff. This follows on from terms such as the GFC, credit crunch, sovereign debt crisis et al.
The fiscal cliff refers to the US legislated tax cuts that all expire at the end of the 2012. And, as a result of the failure of US Congress and the White House to reach a deal on deficit reduction last year, $1.2 trillion in automatic cuts in US domestic and defence spending will begin to kick-in.
Letting the fiscal cliff happen is the equivalent of removing $600 billion from the US economy, and it would likely stall the already fragile US economic recovery, and perhaps push the US back into recession. This is not an attractive option for either US political party or investors alike.
The most likely scenario in my view (and that of the broader market) is a short-term extension of all expiring provisions. This should pave the way for a broader deal on taxes and spending in the latter stages of 2013.
A short-term solution may not be as easy as it seems. This is because the Obama led Democrats retain control of the US Senate, while the Republicans retain control of the US House of Representatives.
So it would seem as though we are set for more market volatility while the US political posturing takes place. If nothing else, as investors, we have become accustomed to political uncertainly in recent times. Nevertheless, previous dips throughout 2012 have proven to be good buying opportunities.
In Australia, the NAB business conditions index result reported conditions declining to the lowest result since May 2009, suggesting that the RBA with its clear focus on unemployment (which is a lagging indicator of growth) may well be watching the wrong set of data.
Businesses are clearly doing it tough, with the index result driven by across-the-board declines in employment, trading conditions and profitability.
Future indicators of forward orders also suggest demand is softening and the economy needs more support from policy. In this regard, the RBA board meets tomorrow to assess rates with a further 0.25% cut to the RBA cash rate from 3.25% to 3.00% per annum expected. Perhaps it will be an early Christmas present for those with a mortgage.
The Australian Dollar was remained strong in November and is currently buying US104.38 cents.
For more information please contact Ryan Love on 1300 856 338 or e-mail ryan.love@apexpartners.com.au.
This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.