Investors wait for Reserve Bank’s Feb meeting

The beginning of 2001 has seen volatile local and overseas sharemarkets, initiated by Alan Greenspan reducing US rates by 0.5%. The subsequent rise on world sharemarkets indicated that investors felt the move to decrease rates would assist a soft landing for the US economy. Unfavourable earnings results since and media reports that indicated the Fed’s move showed a hint of desperation have brought valuations back to earth.

The Australian market will trade upon expectations of a rate cut until the Reserve Bank meets in February, contributing further uncertainty as to the size, if any, of a rate cut given a US economy that appears to be slowing more rapidly than ours. Some local investors may wish to stay away until the Reserve Bank can shed some light on the direction of local interest rates in the light of US rate cuts, generally unfavourable earnings results and indications of a slowing economy.

To find out where interest rates are heading, read our Rate Watch column.