Category: Australia & NZ

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RBA Admits Its Mistake

Key Points

  • The RBA raised its cash rate target by 25 basis points to 3.85%.
  • The consumer price index jumped to 3.8% for the 12 months to December 2025.
  • The unemployment rate fell to a seasonally-adjusted 4.1%.
  • The ASX 200 found support at 8800.

The RBA increased its cash rate target by 25 basis points to 3.85%, citing stubborn inflationary pressures and a labor market that is “a little tight.”

The trimmed mean, the RBA’s preferred measure of underlying inflation, increased slightly to 3.3% for the 12 months to December 2025, up from 3.2% in November. However, a jump in the consumer price index to 3.8% from 3.4% in November spooked the central bank into a speedy reversal of its recent accommodative monetary policy.

Australian CPI & Trimmed Mean CPI

The 0.25% rate increase comes less than 12 months after the RBA commenced rate cuts on 19 February last year. The cumulative 75-basis-point rate-cut cycle is the shallowest in the past 35 years, an acknowledgment that it cut too soon.

RBA Cash Rate Target

The seasonally adjusted unemployment rate fell to 4.1% in December from 4.3% in November, indicating a tighter labor market.

Australia: Unemployment

The S&P Global Composite PMI for Australia jumped to 55.7 in January 2025, the highest level in more than 3 years.

S&P Global Composite PMI

Also, the ANZ-Indeed job ads average increased to 4.4% in January 2026, but remains in a long-term downtrend.

Australia: Job Ads

However, aggregate monthly hours worked grew by 1% over the 12 months to December 2025, suggesting low real GDP growth in the year ahead.

Australia: Aggregate Hours Worked

Over the same 12 months, credit and broad money grew at rates of 7.6% and 7.2%, respectively. The wide margin of more than 6.0% between credit/money growth and actual hours worked suggests strong underlying inflationary pressures.

Australia: Credit and Broad Money Growth

The ASX 200 shrugged off the rate increase, respect of support at 8800 signaling another test of 9000.

ASX 200 Index

The large ASX 200 Financials index indicates increased buyer interest, with a higher Trend Index trough.

ASX 200 Financials Index

The ASX 300 Metals & Mining index continues in a strong uptrend, and recovery above 8000 would indicate a fresh advance, with a short-term target of 8750.

ASX 300 Metals & Mining Index

Conclusion

The RBA faces a dilemma.

On the one hand, economic growth is slowing. Aggregate monthly hours worked grew just 1.0% in 2025, while real GDP growth slowed to 0.4% in the third quarter.

Australian Real GDP Growth

On the other hand, inflation is rising due to high government spending, loose monetary policy, and high immigration, crush-loading the housing rental market.

Hiking rates will further slow the economy, but the central bank is already late in tightening monetary policy and will need to hike aggressively to bring inflation back under control.

For now, the stock market shrugged off the rate increase. However, the RBA will need to inflict some pain to achieve its goal.

Acknowledgments

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ASX Market Snapshot

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, while the one on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks when market valuations are high, but we advise caution when adding new positions.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 56%, from 66% two weeks ago, indicating a mild bear market. One of four Australian indicators signals risk-off, while one of two Chinese indicators does the same. When combined with the US Bull/Bear indicator, which has a 40% weighting, the composite indicator signals a mild bear market.

ASX Bull-Bear Market Indicator

NAB Forward Orders declined to -1 in December 2025, but the 3-month moving average remains above zero, indicating risk-on.

NAB Forward Orders Index

China’s NBS Manufacturing PMI slowed sharply to 49.3 from 50.1 in December, signaling a contraction. The NBS reading was well below the expected 50 but still above the risk-off threshold of 49.0.

China's NBS Manufacturing PMI

The latest reading signaled a loss of momentum in factory activity at the start of the year, as subdued demand conditions and cautious business sentiment continued to weigh amid ongoing structural headwinds. New orders slipped back into contraction (49.2 vs 50.8 in December), alongside a slowdown in output growth (50.6 vs 51.7). Foreign sales weakened further (47.8 vs 49.0), employment remained soft (48.1 vs 48.2), and purchasing activity declined sharply (48.7 vs 51.1). (National Bureau of Statistics of China)

Stock Pricing

ASX stock pricing increased to 82.80 percent from 82.40 percent last week, still roughly mid-range between the August high of 92.23 percent and the April low of 67.85 percent.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

Conclusion

The ASX bull-bear indicator at 56% indicates a mild bear market, with signs that the Chinese economy is slowing. Stock market pricing remains extreme, indicating an elevated risk of a drawdown.

Acknowledgments

Posted on

ASX Market Snapshot

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, while the one on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks when market valuations are high, but we advise caution when adding new positions.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 56%, from 66% two weeks ago, indicating a mild bear market. One of four Australian indicators signals risk-off, while one of two Chinese indicators does the same. When combined with the US Bull/Bear indicator, which has a 40% weighting, the composite indicator signals a mild bear market.

ASX Bull-Bear Market Indicator

The ASX 200 Financials Index continues to test support at 9000 after breaking below its 50-week moving average. A breach of support would signal reversal to a downtrend, indicating risk-off.

ASX 200 Financials Index (XFJ)

Stock Pricing

ASX stock pricing eased to 82.40 percent from 83.24 percent last week, still roughly mid-range between the August high of 92.23 percent and the April low of 67.85 percent.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

Conclusion

The ASX bull-bear indicator at 56% indicates a mild bear market, with signs that the Chinese economy is slowing. Stock market pricing remains extreme, indicating an elevated risk of a drawdown.

Acknowledgments

Posted on

ASX Market Snapshot

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, while the one on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks when market valuations are high, but we advise caution when adding new positions.

Bull/Bear Market

The ASX Bull-Bear Market indicator fell to 56%, from 66% last week, indicating a mild bear market. Three of four Australian indicators signal a risk-on stance, while one of our two Chinese indicators has fallen to a risk-off signal. When combined with the US Bull/Bear indicator, which has a 40% weighting, the composite indicator has eased to 56%, signaling a mild bear market.

ASX Bull-Bear Market Indicator

The OECD Composite Leading Indicator for China declined to 98.96, below the 99.0 threshold, signaling risk-off.

OECD Composite Leading Indicator for China

Stock Pricing

ASX stock pricing jumped to 83.24 percent from 80.82 percent last week, still roughly mid-range between the August high of 92.23 percent and the April low of 67.85 percent.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

The All Ordinaries Dividend Yield is at a low 3.17% compared to its 45-year average of 4.09%, indicating that stocks are highly-priced.

All Ordinaries Dividend Yield

Conclusion

The ASX bull-bear indicator declined to 56%, signaling a mild bear market on signs that the Chinese economy is slowing. Stock market pricing remains extreme, indicating increased risk of a significant drawdown.

Acknowledgments

Posted on

ASX Market Snapshot

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, while the one on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks when market valuations are high, but we advise caution when adding new positions.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 66%, up from 56% eight weeks ago. Three of four indicators from Australia and two from China indicate a risk-on stance, with a combined 60% weighting, while the US Bull/Bear indicator, which accounts for the other 40%, remains bearish.

ASX Bull-Bear Market Indicator

The ASX 200 Financials Index (XFJ) crossed below its 50-week moving average to test support at 9000. A breach of support would indicate reversal to a primary downtrend, signaling risk-off.

ASX 200 Financials Index (XFJ)

Australian private dwelling approvals jumped in November, with the 3-month moving average climbing to 16.7K. Values above the 20-year MA signal risk-on.

Australia: Housing Approvals

Stock Pricing

ASX stock pricing increased to 80.82 percent from 80.57 percent last week, roughly midway between the August high of 92.23 percent and the April low of 67.85 percent.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

The All Ordinaries Price-Earnings ratio of 18.0, based on highest trailing earnings, is at the 93rd percentile and close to the extremes above 20.0 in 1987 and 2000.

All Ordinaries PE of Highest Trailing Earnings

Conclusion

The ASX bull-bear indicator indicates a mild bull market, with most leading indicators above the risk-off threshold. Stock market pricing has softened but remains extreme and does not constitute a buy signal.

Acknowledgments

Posted on

ASX Market Snapshot

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, while the one on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks when market valuations are high, but we advise caution when adding new positions.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 66%, up from 56% eight weeks ago. Three of four indicators from Australia and two from China indicate a risk-on stance, with a combined 60% weighting, while the US Bull/Bear indicator, which accounts for the other 40%, remains bearish.

ASX Bull-Bear Market Indicator

The ASX 200 relative to gold (in Australian Dollars) is the only bear signal, having started a downtrend in November 2021.

ASX 200/Gold (AUD) Ratio

China’s NBS Manufacturing PMI jumped to 50.1 for December, exceeding expectations of 49.2. The first positive reading since March, values above 50 indicate expansion.

China: NBS Manufacturing PMI

Stock Pricing

ASX stock pricing declined to 80.57 percent from 81.05 percent last week, roughly midway between the August high of 92.23 percent and the April low of 67.85 percent.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

Conclusion

The ASX bull-bear indicator indicates a mild bull market, with most leading indicators above the risk-off threshold. Stock market pricing has softened, but does not represent a buy signal.

Acknowledgments

Posted on

ASX Market Snapshot

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, while the one on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks when market valuations are high, but we advise caution when adding new positions.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 66%, up from 56% seven weeks ago. Three of four indicators from Australia and two from China indicate a risk-on stance, with a combined 60% weighting, while the US Bull/Bear indicator, which accounts for the remaining 40%, is more bearish.

ASX Bull-Bear Market Indicator

The ASX 200 Financials Index (XFJ) remains in an uptrend despite its recent dip below the 50-week weighted moving average. A breach of primary support at 9000, however, would signal reversal to a downtrend.

ASX 200 Financials

Stock Pricing

ASX stock pricing increased to 81.05 percent from 79.44 percent last week, roughly midway between the August high of 92.23 percent and the April low of 67.85 percent.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

Conclusion

The ASX bull-bear indicator indicates a mild bull market, with most leading indicators declining but remaining above the risk-off threshold. Stock market pricing is below the August high, but does not signal a buy opportunity.

Acknowledgments

Posted on

ASX Market Snapshot

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, while the one on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks when market valuations are high, but we advise caution when adding new positions.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 66%, up from 56% six weeks ago. Three of four indicators from Australia and two from China indicate a risk-on stance, with a combined 60% weighting, while the US Bull/Bear indicator, which accounts for the remaining 40%, is more bearish.

ASX Bull-Bear Market Indicator

The only Australian bear signal is the ASX 200 decline relative to gold (in Australian Dollars), which started four years ago.

ASX 200/Gold in AUD

Stock Pricing

ASX stock pricing declined to 79.44 percent from 80.70 percent last week, compared to the August high of 92.23 percent and an April low of 67.85 percent.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

Conclusion

The ASX bull-bear indicator is in a mild bull market. Most leading indicators are declining but remain above the risk-off threshold. Valuation has retreated from the August high, but does not yet signal a buy opportunity.

Acknowledgments

Posted on

ASX Market Snapshot

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, while the one on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks when market valuations are high, but we advise caution when adding new positions.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 66%, up from 56% five weeks ago. Three of four indicators from Australia and two from China indicate a risk-on stance, with a combined 60% weighting, while the US Bull/Bear indicator, which accounts for the remaining 40%, is more bearish.

ASX Bull-Bear Market Indicator

NAB forward orders declined to 1, while the 3-month moving average (0.67) remains above the risk-off threshold of zero.

Australia: NAB Forward Orders

China’s OECD composite leading indicator declined to 99.17 for November, slightly above the 99 threshold for a risk-off signal.

China: OECD Composite Leading Indicator

Stock Pricing

ASX stock pricing increased to 80.70 percent from 80.24 percent last week, compared with the August high of 92.23 percent and the April low of 67.85 percent.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

Conclusion

The ASX bull-bear indicator is in a mild bull market. Leading indicators are declining, but in most cases, remain above the risk-off threshold. Valuation is also extreme despite the decline from the August high.

Acknowledgments

Posted on

ASX Market Snapshot

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, while the one on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks when the market valuation is high, but advise caution when adding new positions.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 66%, up from 56% four weeks ago. Three of four indicators from Australia and two from China indicate a risk-on stance, with a combined 60% weighting, while the US Bull/Bear indicator, which makes up the balance, is at 40% risk-on.

ASX Bull-Bear Market Indicator

Australian building approvals for private dwellings remain above their long-term moving average, with the 3-month moving average at 15,600 in October.

Australia: Private Dwelling Approvals

China’s NBS Manufacturing PMI increased to 49.2 in November, also above the 49.0 threshold for a risk-off warning.

China: NBS Manufacturing PMI

Stock Pricing

ASX stock pricing declined to 80.24 percent, compared with the August high of 92.23 percent and the April low of 67.85 percent.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.

The All Ordinaries dividend yield is at a low 3.18%, just above the 3.0% level typical of an overpriced market.

All Ordinaries Dividend Yield

Conclusion

The ASX bull-bear indicator remains in a mild bull market, with China’s NBS Manufacturing PMI holding above its signal line. Valuation is declining after reaching a new extreme, but the risk of a significant drawdown remains high.

Acknowledgments

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