Aus government bracing for poor MYEFO, global equities higher, US dollar stronger, Aussie dollar weaker, ASX futures up 13 points

For a little while now we have been covering the worsening terms of trade dynamics in Australia, with the value of raw materials falling, not enough domestic manufacturing output to exploit increased margins from cheaper commodity prices, and a falling dollar that--while this may be good for some--will increase the value of our imports at the same time as the value of our exports fall. (NB: Australian October trade balance due at 11:30am today, Sydney time.) This week the Australian government has begun to pre-market what will surely be a very poor mid-year economic and fiscal outlook (MYEFO), that is due to be released before the end of January 2015. By pre-marketing, I mean that expectations are being set for a bad update. Australian Federal Treasurer Joe Hockey is, on the one hand, telling the Australian public to shop confidently this Christmas to boost retail trade; on the other hand, he is warning that the public should brace for worsening standards of living unless they support big budget cuts. Opposition leader Bill Shorten is sending the message that the government should be investing in growth - but just like in business, no leader will feel confident to invest in growth unless they believe that they have a great product. If the product in this case is the Australian economy, then the destination for investment should be the sectors with the best performance potential like organic farming, financial services, information services, child care, education, healthcare, information technology and biotechnology. But with such intense focus on budget deficit management and large-scale cuts to public funding, there are no inspiring stories emerging about Australia's promising economic future and tomorrow's promising industries.

The reason for the political preamble is that the world is noticing a bit of a smell emanating from Australia and our markets are reflecting this. In today's first chart you can see the US dollar index (orange line, USDINDEXDEC14 for Rivkin Trader clients) beginning to move higher again after a long sideways period throughout November, which is compounding the falls in the AUDUSD currency pair (black line), which is now trading at US$0.84. On today's second chart you can see year-to-date moves in Australia's ASX 200 index (blue line) versus the S&P 500 index (orange line), which shows we have gone nowhere in 2014 thus far. I recall an interview that I filmed with fund manager Geoff Wilson and former Rivkin director Nigel Littlewood in May 2013 titled "Are we in a 'yield bubble'? I think this is relevant to discuss again, because in a market that is providing us with no capital gains on average, it is important to ensure that your portfolio is paying you to hold it in times like this. I'm not outright bearish the ASX 200 on a medium-term basis, because I don't think it has run too far and I don't believe a big sell-off is warranted. But with a dim budget on the horizon, commodity price uncertainty, potential for a hit to our AAA-stable sovereign rating and political gridlock from a shambolic Senate, I can see the potential for our market to continue going sideways and therefore I believe high yield securities will remain in focus, possible become even more of a focus.

For those Rivkin Local members holding the Income Portfolio, you will have noticed their robust performance in the face of an otherwise weak market. Our Events strategy has been solid and the Blue Chip strategy continues to perform due to its high, fully-franked yield. We constructed the Rivkin Local Model Portfolio using these strategies to provide a total return, all-weather approach for our clients, following the GFC. If your portfolio is out of alignment with ours, I would urge members to consider their holdings and take a closer look at how Rivkin and the majority of its members are positioned.

Today’s charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

Upcoming economic announcements: Japanese asset purchases out at 10:50am, Australian retail sales and trade balance at 11:30am, Bank of England rate decision at 11pm (no change expected), ECB rate decision at 11:45pm, ECB President Draghi press conference at 12:30am, all Sydney time.

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