The Motley Fool

JP Morgan just SHOCKED the market with its RBA rate cut call

Multiple news wires are reporting that the U.S’s largest investment bank, JP Morgan, is turning increasingly gloomy on the outlook for the Australian economy.

In fact JPM has made the outlandish call that the Reserve Bank of Australia will cut official interest rates by 1% to just 0.5% by the middle of 2020.

JPM believes a full one percentage point will need to be lopped off rates in order to reduce unemployment and stoke inflation, which are of course two of the RBA’s key mandates in setting monetary policy.

If JPM’s call is accurate it would mean Australia almost assuming the emergency virtual zero interest rate policy (ZIRP) adopted by the ECB, UK, US, and Japan in response to the GFC of 2008/09.

These ultra-low-interest rate settings were deemed necessary in 2009 to flood markets with liquidity in order to resuscitate credit markets, while all-but-bust banks were also bailed out with the toxic asset relief plan (TARP) in the U.S and copycat programs worldwide.

Moreover, with rates as low as 0.5% the RBA would be introducing virtual quantitive easing (possibly without the debt buying) to the economy due to the flood of liquidity rates at this level would create.

If Australia were to adopt such a policy despite a stable financial system backed up by the post-GFC Basel capital adequacy requirements and low GDP growth it would be unprecedented and likely to have uncertain effects on its capital markets.

For share market investors there are a couple of outcomes more likely than not though.

First up, it’s likely that the Australian dollar could sink at least another 10% versus the U.S. dollar to make the U.S. dollar profits earned by companies overseas worth significantly more to local investors.

I’ve mentioned leading healthcare names such as Cochlear Ltd (ASX: COH), CSL Limited (ASX: CSL) and ResMed Inc. (ASX: RMD) as good investment opportunities if the RBA does cut rates faster than expected.

High-paying dividend shares are also likely to become increasingly attractive whether they frank dividends or not, which could be a positive for the REIT sector or traditional favourites like the Commonwealth Bank of Australia (ASX: CBA).

While another obvious outcome if the RBA opts for a liquidity flood is a return to rising house prices as borrowing limits rise and the liquidity flows into asset prices.

In theory lower rates should also encourage more borrowing by property investors and be a positive for the banks, but I still expect on a net basis the ultra-low-lending-rate environment will be a negative for bank profits. After all the more banks can lend at higher rates the greater their potential profitability.

Unsurprisingly a couple of leading bank CEOs have already publicly come out to warn that lower rates will not help them or the local economy.

As an alternative to CBA or Cochlear I’m happy to suggest either of these two tech shares . In fact I bought one of them myself not that long ago...

It’s hard to believe what these 2 ASX companies could mean to the digital payments revolution

The Motley Fool’s top tech analyst has spent years studying the huge global trend in which cash and traditional banks give way to new digital payments systems... And now he’s identified the two ASX companies he believes are poised to win this multi-trillion-dollar “war on cash.”

If he’s right, these two companies could power your portfolio for years to come. Heck, stock #1 is already up 204% in just the last two years...

While Stock #2 has climbed a stunning 954% just since 2015.

Yet we think the biggest returns look to be still ahead. In fact, our expert is convinced investors who act now could be in for 10X gains (or more). Which means you will want to get the details on these 2 ASX companies as soon as possible.

So click the link below right now! We’ll tell you how to pick up your free copy of this brand new report, “Leave Your Wallet at Home: 2 Stocks for the Digital Payments Revolution”…

CLICK HERE TO FIND OUT MORE!

Tom Richardson owns shares of Cochlear Ltd., CSL Ltd., and ResMed Inc.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and CSL Ltd. The Motley Fool Australia has recommended Cochlear Ltd. and ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!