March, 2021 - Macarthur Wealth Management

Aussie equities rise as JobKeeper nears end

Need help? Contact us Macarthur Wealth Management for expert financial advice. https://www.macarthurwealth.com.au

The Aussie share market finished higher this week whilst global markets were trending lower on concerns regarding further lockdowns in Europe.

In local stock news, Crown Resorts received an unsolicited and non-binding takeover offer of $11.85 per share, valuing the company at $8 billion. The bid came from US private equity group Blackstone. The bid looks cheap in light of Wynn Resorts’ offer of $10 billion in 2019, but recent regulatory issues at Crown have given opportunistic suitors a window.

General insurance stocks came under a little pressure this week in light of the rain bomb which blanketed and drenched most of NSW and QLD causing widespread flooding and damage. IAG said it had received more than 8,000 claims.

Premier Investments, owner of retailers, defended not repaying $15.6 million in JobKeeper assistance after reporting an 88% profit increase. The business posted a 1^st half $188 million net profit, a strong result.

The oil price weakened again this week as concerns arose regarding demand as rising Covid cases in Europe and slow vaccine distribution resulted in some countries increasing lockdown restrictions. There was a small reprieve in the oil price during the week after a quarter-mile long cargo ship ran aground in the Suez Canal, blocking the busy route, raising supply concerns.

The Aussie dollar fell this week as the US dollar strengthened on an improving economic outlook and dovish rhetoric from the US central bank. A weaker iron ore price also didn’t help.

Australia’s unemployment rate dropped to 5.8% in February, 0.5% lower than it was in January, and now sits at pre-Covid levels. The recovery has been faster than anyone expected, however, there are some concerns for the period ahead in light of JobKeeper coming to an end.

The Australian Treasury has said that the withdrawal of JobKeeper at the end of March could see as many as 150,000 more Australians out of work, whilst more than 1 million workers were still being supported by JobKeeper at the start of 2021.

Australian retail sales figures for February fell 1.1%, not helped by lockdowns in Victoria and Western Australia, but also a function of the significant amount of retail spending brought forward last year and some concerns regarding the ending of JobKeeper.

The Australian population fell by 4,200 in the 3^rd quarter of 2020, the first fall since World War 1. Net overseas migration detracted from the population whilst the natural increase added but wasn’t enough. Victoria and NSW saw falls, whilst all other states recorded an increase. More recent data shows that the number of returning Australians is still only half pre-Covid levels. Skills shortages will be one to watch.

Credit rating agency Fitch has upgraded its global growth forecast for 2021 to 6.1%. The new estimate would make for the fastest worldwide expansion since 1980. US economic growth is expected to reach 6.2% for the year, in light of significant fiscal and monetary support, whilst China is planning for 6-6.5% economic growth this year.

US labour market data showed a declining number of Americans claimed unemployment insurance, with claims dropping to a 1-year low.

A busy period for central bankers of late with the Bank of Japan carving out more flexibility in its stimulus arsenal following a review of its policy framework. The US Fed pushed through a dovish message (ie. no changes to their stimulus program and no rate rises), the UK central bank talked up their economic outlook, whilst the Norwegian central bank also provided a hawkish assessment. The Turkish and Brazilian central banks hiked interest rates in order to protect their currencies (which subsequently resulted in the firing of the Turkish central bank president), whilst the European central bank President applied pressure to governments pushing them to roll out fiscal stimulus promptly.

A key survey showed that private sector activity in the Euro area unexpectedly grew for the first time in 6 months. Manufacturing in Germany was particularly strong, no doubt boosted by Chinese economic growth, whilst factory activity in France was also higher than expected. Both manufacturing and services showed faster than forecast expansions in the UK.

European countries including Germany, France, and Italy, have restarted using AstraZeneca’s vaccine after the European authorities gave the vaccine its endorsement. Europe is a long way behind on the vaccine front. There are threats to withhold vaccine exports to the UK given AstraZeneca is a British company with production facilities throughout Europe. The need for Europe to speed up its vaccination efforts was brought into focus by France announcing a new lockdown in several regions as well as Germany extending its lockdown.

US-China relations appear more strained than before after officials from both countries met in Alaska for 2-days of talks that quickly descended into bickering and insults. Fair to say the Americans got embarrassed on home soil and on the global stage. Not a good look.

US President Biden also traded barbs with Russian President Putin following news that the US is considering new sanctions on Russia to block construction of the nearly completed gas pipeline from Russia to Germany. Last time I checked, Russia and Germany were consenting adults. Germany and broader Europe need the gas if they are to transition away from fossil fuels over the longer term. Fair to say the US has bigger problems closer to home like the Mexican border and re-opening their economy.

The authors of a report on the global economic recovery have noted that whilst Australia is amongst the top spenders on Covid recovery initiatives, it has diverted very little of those funds to green projects and ranks last among the top 50 economies in its recovery. Very simply, that’s because Covid recovery efforts should have nothing to do with green projects. Covid recovery is exactly that, ie. getting households, businesses, and the economy back to where they were pre-Covid as fast as possible. The authors also noted that we had “hitched” our economic recovery to natural gas…..considering the world can’t transition to renewables without natural gas, “hitching” ourselves to natural gas is a smart and fiscally responsible thing to do.

General Advice Warning

The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

Disclaimer

All statements made on this website are made in good faith and we believe they are accurate and reliable. Macarthur Wealth Management does not give any warranty as to the accuracy, reliability or completeness of information that is contained in this website, except in so far as any liability under statute cannot be excluded. Macarthur Wealth Management, its directors, employees and their representatives do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided on this website is owned by Macarthur Wealth Management. You may not alter or modify this information in any way, including the removal of this copyright notice.

Equities weaker as bond yields push higher

Need help? Contact us Macarthur Wealth Management for expert financial advice. https://www.macarthurwealth.com.au

Local and global equity markets fell this week, with Europe the exception, as rising US government bond yields continued to spook investors.

In local stock news, the financial regulator APRA has closed its investigation into Westpac’s breaches of anti-money laundering and terror financing laws. The bank last year agreed to a $1.3 billion fine.

News Corp has reached a multi-year agreement to provide Facebook Inc users access to news in Australia. Interestingly lawmakers in the US have raised concerns regarding Facebook’s and the other tech giant’s behaviour noting both Facebook and Google’s recent threats to cut off Australian news.

The Commonwealth Bank of Australia said it will offer its own buy-now-pay-later service to customers from mid-year. Customers will be able to use debit and credit cards to access the service for purchases between $100 and $1,000 and pay in 4 fortnightly instalments. Interestingly, whilst providers like Afterpay charge retailers about 4% of the sale, CBA said businesses would pay no more than its standard fee (around 1%).

The oil price fell this week on concerns regarding the demand outlook, particularly from Europe, as investors realised that the “re-opening” trade of the last 4-6 weeks actually needs some level of re-opening…

RBA governor Philip Lowe noted that whilst investors expected the official cash rate could be hiked next year and again in 2023, this was not an expectation the board shared.

The number of Australians employed surged by 88,000 in February, which along with no change to the participation rate, saw the unemployment rate fall to 5.8%. Hours worked has now also made a full recovery to be back to pre-Covid levels. JobKeeper ending this month may have some impact, but we won’t see that in the data until at least June.

Nearly 1 in 3 Australians say they’re in financial distress according to a University of Melbourne survey. Some 31% of respondents now report difficulty in paying for everyday essentials, 43% said they felt financially comfortable, whilst 46% of respondents say they’re satisfied with official measures to boost job security.

The RBA is closely monitoring Australia’s booming housing market as prices rise and lending soars to new records. For now, both the government and the RBA are happy with house prices rising given positive flow-on effects for the economy, however, the major banks are now forecasting double-digit house price growth over the next 2 years.

The US central bank will keep rates near zero and maintain their sizeable monthly asset purchase (ie. money printing). The bank expects the US economy to continue improving this year but plans to keep interest rates near zero until employment increases. Some members saw rate increases by the end of 2023, but the majority have no rate increases until 2024.

US consumer sentiment improved in early March to its strongest level in a year, a key survey showed. However, retail sales dropped more than expected in February due to bitterly cold weather across the country.

UK economic growth dropped by almost 3% in January which was smaller than widely expected in light of increased Covid restrictions. It was the largest drop since April 2020, with January’s reading 9% below the levels seen pre-Covid. January trade data showed a huge record fall in both exports and imports.

Official data showed French final inflation rose largely in line with estimates in February, whilst investor sentiment in Germany increased by more than expected in March. Germany is doing well because the Chinese are doing well.

In good news for exports, Chinese industrial output beat expectations for January/February, with output up 35% from a year earlier. Other data showed a surge in factory and retail sector activity in the first 2 months of the year, beating expectations.

Europe’s struggle on the vaccine front looks set to continue with AstraZeneca likely to deliver less than half as many doses as planned in the 2^nd quarter. This comes after several European countries suspended their use of the AstraZeneca vaccine following some adverse reactions. The number of adverse reactions were small, leading many to speculate that this was revenge for lack of supply from the Brits. Johnson & Johnson said it would aim to bring its vaccine to Europe in the 2^nd half of April following recent approval.

The US stepped up their game against China tightening restrictions on selling 5G-related goods to Chinese telecom giant Huawei. The ban is effective this week and creates a more explicit prohibition on the export of semiconductors, antennas, and batteries for Huawei 5G devices.

Recent news flow in the USA seems to indicate that President Biden is planning the first major federal tax hike since 1993 to help pay for a “long-term economic program”. Among the moves proposed are raising the corporate tax rate to 28%, increasing income tax on “high earners”, and a possible hike in capital gains tax. Rather silly giving people cash-handouts one week to then take it back via tax later. Income hard earned by households and businesses is always best left in their hands/pockets. Raising taxes will simply discourage investment and/or encourage more investment offshore. Spend less, tax less.

The Chinese President has warned that China will go after so-called platform (tech / media / payments) companies that have amassed data and market power, a sign its crackdown on the internet sector is just beginning. The government wants Alibaba to sell media assets, concerned by the tech giant’s influence over public opinion. These moves come after they forced Alibaba to restructure their ownership of Ant Financial, which led to the pulling of the Ant IPO.

Need help? Contact us Macarthur Wealth Management for expert financial advice. https://www.macarthurwealth.com.au

We are a Parramatta based financial planning practice, specialising in retirement planning, superannuation and investment advice.

Whether you want to start preparing for retirement or have already done so we can help you implement a personalised financial roadmap.

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Strategies to rebuild super after early access

3 STRATEGIES TO REBUILD YOUR SUPER

If you’ve accessed your super early due to COVID, there are a number of strategies that can help you get your super back on track when the time is right. There are three key strategies that could help you boost your retirement savings between now and retirement.

1. Allocate some of your pre-tax salary to super

WHO COULD THIS WORK FOR?

This may be appropriate for those who have sufficient cash flow to divert some of their pre-tax salary to super (before it hits your wallet for spending). It doesn’t need to be a large amount to start and you can further increase the amount that you contribute in the future once things are back on track.

STRATEGY AT A GLANCE

If, and when, the time is right, you may be able to arrange for your employer to contribute some of your future pre-tax salary, wages or bonus directly into your super fund— this is called a salary sacrifice contribution. By making regular additional contributions to super, you’re helping build up your account balance again. Don’t be afraid to start small if it is all you can commit—even small incremental amounts add up over time. The sooner you can start making even small contributions, the better. Salary sacrifice contributions are made from your pre-tax salary which can be a great, disciplined way to save for retirement. Super is also a long term investment, so, the younger you are when you start saving for your retirement, the more time you’ll have to benefit.

INFORMATION TO CONSIDER

Salary sacrifice contributions count towards the concessional contributions cap. Concessional contributions include employer contributions (also known as super guarantee) and personal contributions claimed as a tax deduction. Breaching the cap may lead to additional tax penalties. Also, salary sacrifice contributions are generally taxed at the concessional rate of up to 15% rather than your marginal rate, which could be up to 47% . Depending on your circumstances, this strategy could therefore reduce the tax you pay on your salary and wages by up to 32%. Get started with boosting your super.

2. Make a spouse contribution and receive a tax-offset

WHO COULD THIS WORK FOR?

Members who are in a couple, where one spouse earns less than $40,000 a year and there is capacity to make a super contribution on behalf of a spouse.

STRATEGY AT A GLANCE

If you make an after-tax contribution into your spouse’s super account and they earn less than $40,000 a year, you may be eligible for a tax offset of up to $540. To qualify for the full offset of $540 in a financial year, you need to contribute $3,000 or more into your spouse’s super account and your spouse must earn $37,000 a year or less. A lower tax offset may be available if you contribute less than $3,000 or your spouse earns more than $37,000 a year but less than $40,000. Spouse contributions can be a great way to grow your super as a couple and to be rewarded via a tax offset for saving for retirement.

INFORMATION TO CONSIDER

A spouse contribution counts towards your spouse’s non-concessional contribution cap and must be within this cap to entitle you to the tax offset.

3. Make personal contributions and claim a tax deduction

WHO COULD THIS WORK FOR?

Unlike salary sacrifice contributions, personal contributions can be made with your take home pay or savings. You can do this regularly or wait until the end of financial year which could provide greater flexibility and planning options if you have irregular income or expenses.

STRATEGY AT A GLANCE

You could make a personal contribution and claim a tax deduction for the amount (turning it into a personal deductible contribution). This could help to reduce your assessable income and manage your tax liability. The contribution will generally be taxed in the fund at the concessional rate of up to 15%, instead of your marginal tax rate which could be up to 47%.

Depending on your circumstances, this strategy could result in a tax saving of up to 32% and enable you to increase your super. You could put some or all of these savings towards making even more super contributions in the following year.

INFORMATION TO CONSIDER

These contributions are treated as concessional contributions and count towards your concessional contributions cap. Exceeding your cap may result in additional taxes and penalties.

Need help? Contact us Macarthur Wealth Management for expert financial advice. https://www.macarthurwealth.com.au

We are a Parramatta based financial planning practice, specialising in retirement planning, superannuation and investment advice.

Whether you want to start preparing for retirement or have already done so we can help you implement a personalised financial roadmap.

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Rising government bond yields cause market turbulence

Equity markets were mixed this week with the US market falling on rising inflation concerns, whilst the European market held its own and the Australian market was flat to weak. Asian markets were mixed.

The bond market did its best to de-stabilise all other investment markets with government bond yields rising yet again on better-than-expected economic data, rising inflation concerns, and fears that central banks won’t continue their accommodative policy measures. Yes, yields should’ve moved a little higher with expected better economic outcomes, but inflation and central bank concerns are unfounded at this stage.

Global oil prices rose after OPEC+ oil producers elected to keep production targets unchanged into April. The Saudis will extend their voluntary production cut of 1 million barrels per day.

The Aussie dollar finished flat this week against the US dollar, but the US dollar did rise against a basket of other currencies as it found support from investors given the better growth outlook.

The Reserve Bank of Australia left the cash rate on hold at 0.1% and maintained their other policy settings, saying they remain committed to maintaining highly supportive monetary conditions until its goals are achieved (2024 at the earliest), that is, inflation sustainably in the 2-3% band which will require significantly lower unemployment from here. Given the recent rise in bond yields, the Bank may have to increase their bond buying program (ie. money printing).

Australian real (net of inflation) economic growth rose by 3.1% in the 4^th quarter, with household consumption increasing solidly, and dwelling investment, business investment, and public spending all adding to the growth. The quarterly print came in well above expectations. Economic growth contracted by 2.4% over 2020, with the economy 1.1% below its pre-Covid peak.

Total credit to the Australian private sector rose by a weak 0.2% January, with annual growth dipping to 1.7%. Housing credit was up 0.4% and sits 3.6% higher on the same time last year. Business credit growth contracted by 0.1% whilst personal credit fell 0.9%.

Australian company profits fell by 8.1% in the 4^th quarter as government subsidies fell away. Hardest hit were non-mining firms with profits down 14.4% whilst mining firm profits were up 11.5% assisted by stronger commodity prices. Wages and salaries rose by 1.4% in the quarter.

Australian dwelling prices rose by 2% in February, with detached houses posting a strong 3% lift in the month. Leading indicators are pointing to further strong gains in dwelling prices. New lending for housing rose by a massive 10.4% in January, with the value of lending rising for both owner occupiers and investors. Growth in new housing lending (ex-refinancing) rose 10.5% in January, with strong growth from both owner occupiers and investors. New lending to first home buyers is up by 73.2% over the year.

The Australian current account surplus increased to $14.5 billion in the 4^th quarter. The trade surplus widened due to strong rural and hard commodity exports, with exports rising 7.9% and imports rising by a lesser 4%. It was the biggest monthly trade surplus in Australian history, coming in well ahead of economist forecasts.

US consumer spending increased by the most in 7 months in January, but price pressures (inflation) remained muted.

European manufacturing data produced no significant surprises with the underlying recovery on-track. UK consumer credit data was weak in January and mortgage lending was also weaker than expected, though mortgage approvals were strong. German inflation data came in on the strong side of expectations at 1.3% on the same time last year.

A survey showed that the Eurozone economy is almost certainly in a double-dip recession as lockdowns continue to smash the services industry but hopes for a wider vaccine rollout drove optimism to a 3-year peak.

On the virus front, concerns have risen regarding Covid-19 variants. Whilst some concern is valid (though the data to date is quite spurious), it’s fair to say the press (and some governments) are doing their best to keep us fearful. There are variants to almost every virus. We have 3 options: accept that accounting for every variant is an impossible task and move on with making our own personal risk-based assessments of how we live our lives; accept that the vaccines are broad and effective enough to cover the main strains; or repeat 2020 lockdowns each year into eternity. Some countries are still operating like we’re in the dark on Covid-19 with 10 day plus hotel quarantines (21 days in Hong Kong) for inbound travellers. The European Union and other parts of the world are also discussing “vaccine certificates/visas” (a slippery slope) but haven’t decided on what type of “privileges” they would grant.

On the vaccine front, the US FDA approved the Johnson & Johnson single-shot vaccine and outlined a fast-track approval process for new vaccines or booster shots to combat new strains. This is important as the technology used for the Pfizer and Moderna vaccines (ie. mRNA) allows for variant vaccines to be developed rather quickly, though trials and vaccine production would still be needed. The US announced that they will likely have enough vaccine doses by the end of May to vaccinate all adults.

The US House passed the mammoth US$1.9 trillion “Covid relief bill” and it’s now slated for Senate approval. Problem is there isn’t much Covid relief in the bill…….. The vote was largely across party lines with 2 Democrats voting against the bill. The bill will provide $1,400 stimulus cheques to households, but stricter eligibility criteria will result in less household stimulus than provided under President Trump. The $15 minimum wage proposal is unlikely to pass the Senate due to parliamentary procedure requiring a super-majority vote.

Need help? Contact us Macarthur Wealth Management for expert financial advice. https://www.macarthurwealth.com.au

We are a Parramatta based financial planning practice, specialising in retirement planning, superannuation and investment advice.
Whether you want to start preparing for retirement or have already done so we can help you implement a personalised financial roadmap.
https://www.macarthurwealth.com.au/

General Advice Warning
The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

Disclaimer
All statements made on this website are made in good faith and we believe they are accurate and reliable. Macarthur Wealth Management does not give any warranty as to the accuracy, reliability or completeness of information that is contained in this website, except in so far as any liability under statute cannot be excluded. Macarthur Wealth Management, its directors, employees and their representatives do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided on this website is owned by Macarthur Wealth Management. You may not alter or modify this information in any way, including the removal of this copyright notice.

Month: March 2021

Aussie equities rise as JobKeeper nears end

Equities weaker as bond yields push higher

Strategies to rebuild super after early access

Rising government bond yields cause market turbulence

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Month: March 2021

Aussie equities rise as JobKeeper nears end

Equities weaker as bond yields push higher

Strategies to rebuild super after early access

Rising government bond yields cause market turbulence

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