INTEREST RATE CUT NO MIRACLE FOR MARKET

THE $25 billion plunge in the market yesterday provided an – to say the least – unusual precede to today’s, Tuesday’s, official rate cut from the Reserve Bank.

Normally, interest rates going down tends to go along with – indeed, to actually cause – share prices to go up.

Lower interest rates make fixed interest investments, like bank term deposits, less attractive compared to equities. Lower interest rates also promise to spur the economy, which in time should boost corporate profits and so share values.

Yet that lower rate expectation and the – decidedly unexpected – reelection two weeks ago of a biz-friendly government, and even more specifically the defeat of an opposition that promised to be anti-biz and to be anti-biz right across the board, has failed to boost the market.

Yes, there was immediate 100-point “relief rally” on the Monday after the election. But after that the market gave it all back as it drifted lower and yesterday’s drop took it (just) into negative territory post-election.

Not even “buy on the rumour” and “sell on the fact” explains this. After all, we haven’t had “the fact” yet: that comes at 2.30pm.

No, the explanation lies (mostly) elsewhere: on Wall St.

We are hostage to a world made in America – on Wall St and in Washington – overnight.

The “easy” target is President Trump. Markets are deemed to be “nervous” at his escalating trade war with China and the

The more important, more sustained influences are the usual ones: uncertainty about US economic policy and especially what the Fed might do with interest rates, along with market-specific factors like and especially tech valuations.

We now have various companies valued around the $US1 trillion mark – any two of them are bigger than the entire Aussie market.

In the most fundamental way, how are those values validated by actual annual products, far less the neverending double-digit growth year after year after year which is implicit in them?

So we wake up every morning to those that have all played out through the North American day. Then add two broad local drivers and stir.

The first is not so much the actual rate cut – or even whether further cuts will follow; but what is actually happening and even more developing in the Aussie economy.

Let me let you into a big secret: nobody knows, not even the guys at the RBA and Treasury really know. In part that’s even actually

we are getting today’s