MARKETS SPECTATOR: Buffeted by global waves

Credit Suisse’s Damien Boey says a lack of domestic confidence, Japanese volatility and expectations of Federal Reserve easing is hurting Australian stocks.

The Australian market is being plagued by a lack of domestic confidence, Japanese market volatility and the limits of the US Federal Reserve's quantitative easing policy, says Credit Suisse strategist Damien Boey.

Post the Reserve Bank rate cut, the stock market has been negatively effected by gloom over Australia’s economic fundamentals. Job losses – notably Ford’s announcement it was ending car production in Australia – and a fall in housing prices has made some question the prospects of the Australian economy now that mining investment may have peaked, says Boey.

Abroad, the rise in Japanese government bond yields, despite Bank of Japan governor Haruhiko Kuroda saying that sufficient monetary easing is in place to minimize bond-market volatility, is worrying investors and causing stocks to be whiplashed by volatility.

“The bottom line is that if bond yields are increasing, the extreme volatility associated with it is forcing investors to de-risk their portfolios,” says Boey. “If Japan’s economic and monetary policy is ahead of Europe and the US because the economy has been in recession longer, then that puts pay to the notion central banks can pump everything up. US equity markets have barely budged in the face of Japan.”

Meanwhile, the US private sector shows no sign of picking up the baton with greater lending and investment following the Fed’s signal it may start to ease off QE3 amid fiscal austerity that has dropped the country’s deficit to about 3 per cent of GDP from as much as 9 per cent, according to Boey. “The American economy is disconnected with the stock market,” he says.  

At 1427 AEST the S&P/ASX200 Index was down 33.899, or 0.7 per cent, to 4949.60. The index is down 5.2 per cent since it reached a 52-week high of 5249.60 on May 15, according to Bloomberg data.