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Investment Portfolio Monthly Report – March 2015

Economic Review

At its meeting on April 7, the Reserve Bank of Australia decided to leave the cash rate unchanged at 2.25% for the second consecutive month and stated that further easing of policy may be appropriate over the period ahead. The consumer price index rose 0.2% in the December quarter and 1.7% through the year. The seasonally adjusted unemployment rate for February 2015 was 6.3%, compared with 6.4% for January 2015. Retail sales rose 0.7% in February, seasonally adjusted, following a rise of 0.5% in January. In trend terms, retail turnover rose 4.0% in February 2015 compared with February 2014. The number of dwellings approved rose 1.6% in February 2015, in trend terms, and has risen for nine months. The Australian Dollar weakened by 2.03% against the US Dollar during March to close at 0.7634. Over the last 12 months the Australian Dollar has weakened 17.2% against the US Dollar.

In the United States, total nonfarm payroll employment increased by 126,000 in March, and the unemployment rate was unchanged at 5.5%.  Employment continued to trend up in professional and business services, health care, and retail trade, while mining lost jobs. The consumer price index increased 0.2% in February on a seasonally adjusted basis. Over the last 12 months, the index was unchanged before seasonal adjustment.

Strategy

In Australia, some indicators of consumer and business confidence have improved and exports are rising. However, labour market conditions are subdued and wage growth remains low. It will probably be some time yet before unemployment starts declining consistently. Mining investment is set to decline significantly over the next 12 months and Government spending is expected to be subdued. We expect economic growth in Australia to remain below trend for the next 12 months and it seems likely that the RBA will cut interest rates further during 2015. We expect the A$ to weaken against the US$ over time. We believe the US economy will continue to improve and for unemployment to decrease further albeit at a slower pace. Accordingly, we continue to recommend a diversified portfolio with exposure to both the Australian and US economies. Australian Equities reward investors with attractive dividend yields whereas US Equities offer higher capital growth.

 

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