SPI200... on the way back?

[MichaelPurcell]

Is this now the time for the SPI200 to recover lost ground comparatively to other Indices?

Over the past 1 year the SPI200 is down -4% compared to Dow Jones +11.82% and S&P500 +9.94%.

A massive appreciation in the AUD against the USD has pounded Australian company earnings and the stock market as a result. However, once the FED induced stimulus dries up and inflationary issues will need to be addressed one would assume interest rates will rise and the AUDUSD will pull back. Meaning the SPI200 has a major case for making up some of this lost ground.

Only a matter of time?????.......

 

[MichaelPurcell]

Well not quite on the 'path back' after this week. The SPI200 had a shocker start to the week however finished strongly.

 

[MichaelPurcell]

The AUDUSD has dipped into the $1.04s region. Could this finally be a sign for the SPI200 to begin to outperform the Dow Jones and S&P500. I will be wacthing very closely for any evidence of this on Monday morning.

 

[MichaelPurcell]

This week saw the SPI200 fall further behind the Dow Jones and S&P500. Given the AUDUSD exceeded $1.07 at weeks end perhaps not just now. The moment inflationary pressures strike the US and rates look like being raised I will look to act but for now the gap continues to widen. Over the past 1 year the ASX200 is up 3.96% vs the Dow Jones up 22.73% and S&P500 up 22.41%.

 

[ronblack]

Does Australia have debt and deficit?

 

[MichaelPurcell]

Yes Australia does have debt and deficit... although not in the same stratosphere as the USA.

Here are the basics: (RBA - Australia 4.75% Cash Rate and 3.3% Inflation) compared to (FED - USA 0.10% Federal funds rate and 3.6% Inflation)

A large Interest rate differential has caused a major appreciation in the AUSUSD which I argue has killed off the SPI200; especially since Apr11 onwards as evident from the below chart where also previous correlations between both markets and the AUDUSD has dried up:



My argument is essentially that the SPI200 will close the gap once the FED is forced to raise rates. When this happens is anyone's guess?