Aussie market pricing in too much pessimism: | Australian Markets

New commentary from Franklin Templeton’s fixed income arm has resisted the “disproportionately bearish view” exhibited by the native bond market, pointing to Australia’s “solid” fundamentals as not cause enough to warrant the “undue” pessimism.

Andrew Canobi, Director at Franklin Templeton Fixed Income, stated the market’s tackle the nation’s financial outlook was too “bleak”, given Australia has principally prevented the brunt of the US’ taxing trade insurance policies and is exhibiting indicators of stability with the labour market remaining sturdy, unemployment remaining regular and monetary coverage remaining “expansionary”.

Canobi stated the market’s expectation of roughly 5 25-basis-point rate of interest reductions by the top of the 12 months is uncalled for, reiterating the firm’s base case for the Reserve Bank of Australia to make solely two more cuts. He stated buyers ought to look to the US for more “acute risks brewing”, given ongoing trade disputes and doubtlessly forcing the US Federal Reserve’s hand in chopping rates of interest additional.

“The 90-day delay on the so-called ‘Liberation Day’ tariffs is only a temporary pause,” he stated.

“The Fed gained’t hesitate to behave if unemployment ticks larger, even with core inflation approaching 4%. Chair Powell has already referred to the inflationary affect of tariffs as ‘transitory,’ laying the groundwork for coverage easing.

“It’s surprising to see Australian markets pricing in a softer trajectory than the US, despite the latter facing far more direct downside risks. The Australian economy is relatively shielded from global tariff impacts. And if China ramps up stimulus, that could lift demand for Australian iron ore, offering upside potential.”

With the federal election accomplished, Canobi stated there’s “little evidence of a sharp deterioration in economic activity”.

“Unemployment is stable, inflation is moderating but not collapsing and it’s certainly not doing a bungee jump,” he stated.

“We suppose the market has its wires crossed. There’s restricted worth in Australian length at this level. We’re discovering higher risk-reward alternatives on the short finish of the US curve.

“Cutting through the sentiment swings, Australia’s domestic fundamentals are solid enough to warrant a more measured outlook.”