The Loewy Blog Edition 9 - 29 May 2013

Interest Rates - Borrowing

Borrowing rate continues to decline.

Approximate current rates on residential security 2-3 years fixed at approximately 5.1-5.2%

Variable rates are approximately 4.9 - 5.2% -after discount.

In our view the RBA will defer any cuts in interest rates unless the economy stalls and unemployment starts to rise towards 6.0%.   With the reduction in the $A and soft Chinese conditions continuing, the dollar devaluation may well be doing the reserve banks work in deflating the perceived asset bubble in high yield stocks and real estate from further rising.

Term Deposits

Current 3-9 month rates are between 3.9 to 4.0%, 1-2 year rates are at about 3.9%.  We see minor further downward pressure on these rates going forward.

Sharemarket

The All-Ords closed Friday 24 May at 4954, at its lowest level since April 24.  With the devaluation in the $A dollar and (Japanese share market softer) institutions predominantly foreign institutions are taking profits off the table on financials,  banks and other high yielding stocks and stocks going ex dividend.  We see continued pressure on the market to retreat towards 4800 (mainly from foreign investment selling).  We however see a rebalancing  back for the All-Ords to trade between 4800-5100 over the year as yields for banks and price earnings start to rebalance back towards more historical levels.                                

Foreign Exchange

With the continued flight back to US$ and US assets and continued pressure on commodities and a softer China.  A traditional realignment of commodities/ $A wil continue.

We predict a range of the US$ / $A between 90-95 cents over the next 3-4 months

Real Estate

Housing sentiment continues to grow in Sydney.  Clearance rates Sydney 25/5 -75%only unemployment up to 6% and beyond will stop this surge.

Stock up to $600,000

Prices will continue to be strong as interest rates continue to decline

Investors and owner occupiers are strong in the market with yield at 4-4.5%, we see continued strength at this end of the market

$600,00 - $1.5M

Market is strong both investors and owner occupiers.

Above $1.5 to 3M

Strength now being found in this end of market, continued clearance and improved prices

Above $5

Stabilisation of prices is continuing to occur with some upswing and large sales occurring.

Disclaimer – The material contained in this newsletter does not constitute advice. DPL & Co Pty Ltd is not responsible for any action taken in reliance on any information contained in this newsletter. Anyone reading the newsletter should not act upon material contained in this newsletter without appropriate consultation