Key points to note are:

• This year seems to be following the pattern of the last two years with a solid start in share markets followed by weakness commencing around April/May. Europe again is a key driver with fears of an imminent Greek exit from the euro and worries about Spain. Since their highs this year global shares have fallen 8% and Australian shares have fallen by 5.5%.
   
• Key differences compared to the last two years (where share markets fell by around 15-20% from April/May highs) including a stronger US economy (particularly the housing sector which is looking more and more like it is starting to recover), global monetary easing and cheaper share markets hopefully should help limit the downside in shares and should help result in much stronger share markets by year end.

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Oliver's Insights – 2012-13 Budget – back to surplus. The great fiscal, monetary switch

This note provides a review of the key changes announced in the 2012-13 budget announced last night. Here, we provide an overview of the major policy initiatives together with the likely impact on the economy and major asset classes.

Key points to note are:

• The Australian Government’s Budget forecasts a $1.5 billion surplus for 2012-13, with savings focussed on defence, foreign aid, the public service, large companies and high income earners via a doubling of the contributions tax on super but handouts for low to middle income earners.
   
• By sticking to the surplus timetable, the Government will further boost foreign investor confidence, provide flexibility for future fiscal stimulus if needed and further enhance the ability of the Reserve Bank of Australia (RBA) to cut interest rates.
   
• The negatives in the Budget are the abandonment of company tax reform and more changes to superannuation.
   
• On balance, the implied policy switch towards tighter fiscal policy and easier monetary policy is a negative for the $A, but probably a positive for Australian shares.
   

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This note looks at the outlook for Australian interest rates and what this might mean for the local share market. The key points are as follows:

• Benign March quarter inflation has cleared the way for a Reserve Bank of Australia (RBA) interest rate cut in May. While the fall in headline inflation to just 0.1% quarter-on-quarter or 1.6% year-on-year (yoy), was exaggerated by a 60% plunge in banana prices, underlying inflation was also weaker than expected, running around 0.35% in the quarter and 2.15% yoy (averaging the trimmed mean and median measures). Price discounting looks to be huge in consumer sensitive parts of the economy with falls in prices for clothing, various household items, cars, sporting goods, etc. and this is likely to continue as demand remains soft.

   

• The RBA should cut by 0.5% on 1 May to ensure a decent cut in mortgage rates, given the ongoing uncertainty as to how much the banks will move by and their independent rate hikes so far this year.

   

• Given ongoing global uncertainties, the softness in the economy, borrower caution, a circa A$40 billion turnaround in the budget for the next financial year and a benign inflation outlook, interest rates should fall between 0.75% and 1% over the next six months. Expect rate cuts in May, June and probably also around August/September.

   

• Lower interest rates, the Australian dollar off its highs and lessening concerns about a Chinese hard landing are likely to be positive for the relative performance of Australian shares. The relative resilience of Australian shares over the last month suggests this may be already getting underway.
   

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This note looks at the outlook for the Chinese economy and share market. The key points are as follows:

• China’s economic growth rate has slowed to 8.1%. Given monetary easing, it is likely to stabilise at around 8% this year, consistent with a soft landing.
   
• GDP growth is likely to be around 7-8% p.a. over the medium term, reflecting strong catch-up potential, high productivity growth and low debt levels.
   
• Chinese shares are cheap, but probably require further monetary easing for sustained gains.

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Oliver's Insights – Global recovery watch – what's the risk of another mid-year growth scare?

This note looks at the risk of another bout of global growth worries dragging share markets down from around May. The key points are as follows:

• The last two years have seen a solid start for shares give way around May to worries about a double-dip back into global recession and 15% plus falls in share markets.
   
• Could the same happen this year? Risks clearly remain, but there is also a good chance that after two disappointing years shares will surprise on the upside.
   
• Key indicators to watch are Italian bond yields, the US ISM index, Chinese money supply, the Australian dollar and oil prices.

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In this edition we look at:

• Our State Adviser of the Year
• Michael Hack – Our new adviser in Bairnsdale
• How to build your super
• Investment ideas for your children
• Estate planning in a modern world

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• The December 2011 half-year reporting season was pretty lacklustre, with essentially flat profits.
   
• Profit growth is likely to pick-up in the year ahead but will still lag consensus expectations for double digit growth.
   
• Australian shares are likely to rise over the year ahead as valuations are attractive and global shares are likely to rise, although we expect Australian shares to remain a relative underperformer for a while yet.
   

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To download this edition of Oliver's Insights click here.