According the the ASX's Interbank cash rate futures implied yield curve chart (try saying that with your mouth full!) as of 1 June, interest rates may heading down by a further 1% or more within the next 12 months (the current official cash rate is 3.75%).
What does that mean?
Effectively that interest rates could be cut four or more times in the next year. In short, the market is pricing in a rough road ahead for global economies, and the Reserve Bank could be frantically slashing interest rates in a bid to stimulate economic activity.
Implied yield curve charts aren't a prediction of the future, as such - rather they reflect a balance of probabilities. So the market prices in the likelihood of a range of outcomes and the impact of those outcomes on future interest rates and yields.
It has been said that the Aussie dollar will have to fall from its current level of around 97 US cents to 90 cents or below in order to entice foreign investors back into the property market. Well, if rates are cut multiple times, then the Aussie dollar will almost certainly be headed significantly lower.
Lower mortgage rates would also see domestic investors and homebuyers back into the market and the lower rates would also see positive-cash-flow investment properties abound once again. Expect to see unit values on the up if multiple rate cuts eventuate.
The graph above implies that the market is extremely jittery and anxious (so am I, in fact, but that's because I have had 3 cups of coffee today) and it could well be a miserable year ahead for shares. In fact, equities were off some 7.5% in May, erasing 2012 year-to-date gains. Yet another crap year for superannuation funds pending...