July, 2021 - Macarthur Wealth Management

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Share markets retrace falls on virus concerns to finish higher

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

Local and global equity markets had a topsy-turvy week initially falling sharply on virus concerns before retracing those losses to finish the week higher as bad news became good news for markets on the expectation of more government and central bank support.

In local stock news, Rio Tinto reported lower than expected iron ore production and shipments for its 2^nd quarter. Heavy rain in WA’s Pilbara region, and coronavirus measures, limited efforts. BHP also reported a dip in quarterly iron ore production.

News broke that oil and gas player Santos is pursuing an unsolicited takeover bid for rival player Oil Search.

JB Hi-Fi shares rose strongly, no doubt supported by lockdown, after the company reported preliminary full year results showing sales up 12.6% and a soaring net profit.

Lendlease continued to streamline their business selling its service business to Service Stream for $310 million. The property group has recently sold its engineering business and US telecommunications and energy operations.

OPEC and its allies struck a deal to inject more oil into the recovering global economy, overcoming an internal split, which resulted in a strong fall in the oil price. The oil price recovered some of the fall after data showed lower than expected US inventories.

The Aussie dollar fell further earlier in the week on increasing virus concerns before mounting a small recovery before the week was out.

The evolving restrictions in NSW and VIC will lead to sizable contraction in economic growth in the 3^rdquarter considering both states combined account for more than 50% of Australia’s economic output. Whilst the government’s fiscal taps have been turned back on, plenty more handouts will be required.

Commonwealth Bank lending data shows a slowdown in the pace of growth in new home lending. However, lending to investors continues to accelerate as lending to first home buyers slows. The average loan size remained elevated whilst the share of fixed rate lending is relatively high.

The preliminary estimate showed Australian retail trade fell by 1.8% in June coming in well below estimates, with the fall heavily affected by lockdowns in several states. Retail spending in July will be substantially weaker.

The Australian national goods trade surplus hit a new peak due to demand for iron ore, with increase in exports for metals, coal, non-monetary gold and gas pushing the surplus to $13.3 billion for June.

Data from the US Commerce Department showed retail sales rebounded 0.6% last month as spending shifted back to services as states are reopening at a faster pace.

The European central bank left interest rates and its program of asset purchases unchanged, as expected, while tweaking its forward guidance on policy to move it in line with its newly adopted inflation target where they’d like to see inflation consistently at 2% before moving on interest rates.

Banks in China kept the benchmark loan rate steady indicating that the central bank is continuing to keep policy stable despite the recent move to add liquidity to the financial system.

On the virus/vaccine front, increased and longer restrictions look likely for NSW and other parts of Australia as case numbers rise and the vaccine drive continues, whilst ICU admissions and deaths remain low. Case numbers in the UK, USA, France and Israel continue to rise, particularly troubling authorities in the UK and Israel where the number of deaths are also rising with already high vaccination rates. In contrast, cases in the USA are rising without the same corresponding increase in deaths. There was an uptick in civil unrest across a range of countries and cities, protesting against lockdowns and vaccine passports.

China has pushed back against a World Health Organisation call for another probe into the coronavirus’s origins that includes examining whether it leaked from a lab, saying there’s no evidence for the theory……hardly surprising.

The Trump administration’s US-China trade deal looks to be under review by the Biden administration after the US Treasury Secretary said the deal failed to address the fundamental problems they have with China.

Taiwan will set up its first office in Europe using the name “Taiwan” (who would’ve thought), a decision the US hailed as a way for the island democracy to strengthen its global presence in the face of pressure from China. Lithuania offered to host the office putting themselves in the firing line of the Chinese given their “One China” principle.

Days after the European Union announced ambitious plans to tackle climate change, the French broke ranks lobbying to water them down as President Macron can’t afford to rile voters ahead of the French elections next year. He’s already under tremendous pressure following recent poor showing in regional elections and recent imposition of the very unpopular vaccine passport.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

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Markets still fretting over rising virus cases

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

Equity markets were mixed this week with developed markets flat to slightly lower on virus concerns whilst emerging markets moved higher assisted by Chinese policy support.

A big jump in quarterly earnings is expected to mark a peak for US profit growth in the recovery from last year’s earnings collapse. Upcoming quarterly results will be key, with analysts now expecting 66% of companies to beat guidance.

In local stock news, Sydney Airport’s board has rejected the $8.25 per share bid from a consortium of super funds citing that the offer undervalues the business, whilst Spark Infrastructure declined an offer for all its securities from a consortium of pension funds offering $2.80 per security. Pension funds cashed up, with cash burning a hole in their pockets.

Wesfarmers made a $687 million bid for Australian Pharmaceutical Industries, the distributor of medicines and healthcare products and the owner of Priceline pharmacies, which will form the basis of a new healthcare division.

Shareholders of waste management provider Bingo Industries voted for a Macquarie takeover, whilst Seven Group continues buying shares in takeover target Boral heading towards the 50% mark.

Buy-now-pay-later stocks fell sharply during the week after a report indicated that Apple plans to allow users to repay Apply Pay purchases in instalments.

Oil prices fell this week on concerns regarding rising virus cases globally, which also resulted in defensive assets like gold and government bonds performing well.

HSBC’s chief economist for Australia and NZ said with NSW accounting for 32% of the nation’s total economic output, an extended lockdown was likely to take a significant economic toll on Australia’s recovery from the virus. NSW Treasury estimates that each week of lockdown takes $850 million off activity.

Australian employment rose by 29,100 in June following a 115,200 increase in May, with the unemployment rate moving down to 4.9%, its lowest level in a decade. However, recent lockdown measures will hurt those numbers in the period ahead.

New Zealand’s central bank surprised most investors with a plan to scrap its bond buying program (money printing) from next week. The result will likely be a soaring NZ dollar. Not good for an export-led economy.

US central bank chair Jerome Powell said it was still too soon to scale back the bank’s aggressive support for the US economy while acknowledging that inflation has risen faster than expected but portrayed a recent jump in inflation as temporary and focused on the need for continued job growth.

Data indicated that US consumer prices rose by the most in 13 years last month, while core consumer prices surged 4.5% on the same time last year, the largest rise since November 1991. The bond market noticed briefly, before turning attention to rising virus cases.

European central bank president Christine Lagarde has signalled that new guidance on monetary stimulus will be provided shortly and that fresh measures might be brought in next year to support the Euro-area economy after the current emergency bond program ends.

China’s central bank cut the amount of cash most banks must hold in reserve in order to boost lending in the economy as growth starts to wane.

China’s exports unexpectedly surged in June, helping to underpin the economy amid signs the recovery is starting to slow.

In a sign that US-China relations won’t be fixed any time soon, the Biden administration will add more Chinese entities to its economic blacklist over alleged human rights abuses whilst the US Senate passed a bill that would ban all goods from China’s Xinjiang region unless importers can prove they weren’t made with forced labour. US relations with Iran don’t look any better with the likely realisation that the 2015 Iranian nuclear accord may be beyond saving, with no progress after multiple rounds of talks.

On the virus front, the pace of reopening remains very mixed around the world whilst virus cases are rising in many countries. Most US states continue to reopen whilst California has just introduced some restrictions. The UK is proceeding with full reopening whilst cases continue to rise amongst a population with high vaccination rates. The rest of Europe remains mixed, particularly between the north and south, whilst cases continue to rise in South-East Asia. Closer to home, all states have seen varying degrees of increases to restrictions, with NSW’s lockdown extension and VIC entering a “snap” 5-day lockdown.

In a sign that the people have had enough, we saw uprisings and street protests all around the world this week. Cubans have had enough of communism, South Africans weren’t happy with the jailing of former leader Zuma, whilst we saw protests in France, Greece, and here in Melbourne against government-imposed lockdowns and vaccine passports.

Finance ministers from the US and Europe expressed confidence that a global tax deal endorsed by the Group of 20 has enough momentum to overcome domestic political obstacles in time for it to be finalised in October.

Democrats on the US senate budget committee agreed to set a US$3.5 trillion spending level for a bill to carry most of President Biden’s economic agenda into law without Republican support. The bill would require the support of all 50 Democrats. This is in addition to the US$579 billion bipartisan infrastructure plan.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Interest rates –accentuating the negative

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

So, it’s just a normal day.

You walk into the bank, deposit some money. And the teller asks you to pay them interest.

Keeping your cool, you ask why.

And the teller apologetically explains: “Oh we’ve got negative interest rates.”

Right now, we’re living in a world where some countries have ‘negative interest rates.’ That means, that instead of rewarding customers for depositing money, a bank (or a central bank) will charge them interest. In financial terms, that’s the world turned upside down.

So how did we get here?

The GFC hangover and COVID-19

Broadly speaking, negative interest rates are engineered by governments and central banks as a way of getting life into a chronically spluttering economy. If it costs you money to put your money in the banks (or it costs banks money to park their funds with the Government) there’s more incentive for individuals to spend it on housing, at the shops, or on holidays. And for banks to invest it in areas that also foster more economic activity and employment – like lending to business.

There’s no coincidence we’re talking about negative interest rates in 2021. They were part of a suite of measures used by some countries to try and get out of the economic slump caused by the Global Financial Crisis back in 2008/09. The economic shock administered by COVID-19 has brought them back into fashion – countries as advanced as Japan, Switzerland and Sweden have jumped on the negative interest rate train.

Australia stays positive

So, what do negative rates mean for you? The good news is that they’re not really happening in Australia. At least not yet. And they probably won’t.

Back in November 2020, the Reserve Bank of Australia (RBA) Governor Dr Philip Lowe said: “There has been no change to the Board’s view that there is little to be gained from lowering the policy rate into negative territory.”

Given that the Australian economy has picked up sharply since then – house prices and employment numbers are on the upswing – there seems less need for negative interest rates in Australia than most other countries.

Different folks

But, while not negative, interest rates in Australia are still at historic lows – and could stay that way till around 2024 according to Dr Lowe and his team at the RBA. This has implications for everyone – but different implications depending on whether you’re a saver or a borrower.

If you’re a saver or retired, low interest rates make it harder to earn the income you used to from products like Cash Management Trusts and Term Deposits. You might find you are considering investing in riskier assets, like shares, to try to make up that income.
If you have large debts – like a mortgage – your interest payments are likely significantly lower. And if you’re looking to borrow, it’s possible you can borrow more money, because your repayments will likely to be much lower.

What goes down must come up

As mentioned earlier, these low interest rates are a symptom of a global economy trying to get itself going again. They’re not normal (though they might feel like the new normal). That means it could make sense to get good advice about how to handle this economic trend – to look out a bit longer than the next three years.

Here’s how good advice could help:

Savers: A financial planner can help you find sources of extra income without taking on too much risk to do it.
Borrowers: Some expert advice could help you ensure you don’t overcommit when it comes to borrowing. As the popular US financial planning radio star Dave Ramsey puts it, “A lower interest rate doesn’t make a debt go away.”

Low and negative rates are likely to be with us for some time. But for Australian savers, borrowers and investors, it’s important to look beyond the obvious, front page economic headlines.

After all, the COVID crisis is just a year old – and already people are talking about a potential post-COVID boom. Things go down – and up again – and down again. Just like interest rates.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

Disclaimer

Equity markets fall on virus variant concerns

Need help? Contact us Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide. (02) 9683 2869. https://www.macarthurwealth.com.au

Equity markets locally and globally fell this week on concerns regarding rising virus cases.

In local stock news, Sydney Airport’s shares rose strongly after they received a $22.3 billion takeover offer equating to $8.25 per share from a consortium of infrastructure investors mostly made up of Australian industry super funds. The offer will be hard for the company’s board to rebuff, but markets aren’t so sure given the stock price remains well south of the offer price.

Tabcorp will spin-off its lotteries and Keno arm as a separate ASX listed business but has chosen not to sell its wagering and media arm despite several suitors offering to pay about $3.5 billion.

Seven Group has continued to lift their stake in Boral buying 60 million shares at $7.40 each with the company now owning almost 41% of Boral.

The upward trend in oil prices reversed course this week on expectations that some countries may break ranks from OPEC+ production targets. The moves come after the United Arab Emirates blocked an OPEC+ deal that cartel leaders Russia and Saudi Arabia had hashed out to increase output. The Saudis and Emiratis have historically had each other’s backs. Demand is likely to remain high as the global recovery continues, whilst US supply runs low due to President Biden’s green policy.

The Aussie dollar fell into the 74c range against the US dollar as investors sought out safe-haven currencies in light of rising Covid cases and weaker Chinese inflation data.

The Reserve Bank of Australia held the cash rate at the record low of 0.1% as expected at their July meeting. The board also made 2 other policy announcements relating to their bond yield targeting program (ie. keeping government bond yields very low) and their bond buying program (ie. money printing) which will see them taper bond purchases from $5 to $4 billion per week until at least mid-November. They also changed their language slightly to indicate they don’t expect to lift rates until 2024 (previously “2024 at the earliest”).

New lending for Australian housing rose by 4.9% in May with a particularly large lift in investor lending in the month which was up 13%. Owner-occupier lending rose by 1.9% whilst lending to first home buyers continues to flatten out. New lending was strongest in NSW and VIC.

New personal lending rose by a very strong 11% in May, which continues the recent trend higher. Commonwealth Bank’s internal data shows lending for cars and household goods are trending higher whilst lending for holidays remains very soft.

The number of Australian residential building approvals posted a large 7.1% fall in May, likely impacted by the ending of the government’s Homebuilder grant scheme. VIC and TAS actually posted increases. Approvals for renovations remain elevated, whilst non-residential building approvals have lifted in recent months.

Australian retail trade rose by 0.4% in May, which was an upgrade on the preliminary estimate. Retail trade continues to run at an elevated level with all major categories running above pre-Covid levels. Spending on food and eating out drove the increase in May.

The US Labor Department’s employment report showed non-farm payrolls increased by 850,000 jobs last month, but the total remains 6.8 million below its peak in February 2020, as the federal government’s over-generous and over-extended Covid unemployment program pays people to stay home until September causing massive labour shortages. The better than expected monthly number comes as some Republican states have started to remove/decline the federal unemployment programs ahead of time thus forcing people back to work.

European central bank policy makers have revamped their inflation target for the 1^st time in almost 2 decades giving itself more room to keep monetary policy loose. The move gives the bank room to overshoot the target if needed, which means they can ply even more stimulus for much longer.

A deal on an international corporate tax system of sorts came a step closer as 130 countries and jurisdictions backed a plan that includes a minimum corporate rate and tax-sharing on multinational firms’ profits. However, 3 European Union countries have resisted the plan given they currently have corporate tax rates less than the minimum being proposed.

On the virus and vaccine front, the NSW lockdown was extended by a week impacting children’s first week back at school. The low percentage of people vaccinated seems to be the main focus of those in charge given their ill-guided elimination strategy, in contrast to the more critical areas of ICU bed availability (plenty) and deaths (very low relative to a normal winter flu season). In other parts of the world, concerns continued regarding the Delta variant, which data shows is more contagious, is significantly less deadly than the original strain, and vaccines are more than effective. The US continues to reopen, the UK is nearing the date when all restrictions will be removed, whilst Japan declared another state of emergency as it tries to ready itself for the Olympics.

Chinese authorities are planning rules changes which would allow them to block companies from listing overseas, closing a two decade loophole which has allowed Chinese tech giants to attract foreign capital. The move continues Beijing’s tightening of controls over the country’s largest tech companies.

Former US President Trump announced that he will sue Twitter, Facebook, and Alphabet as well as their CEOs in a class action lawsuit for blocking him out of their social media platforms. Trump is banned from Twitter for life and Facebook for at least 2 years, pending another review. The case will likely be decided by the US Supreme Court with both sides effectively using the same argument that it’s their 1^st amendment right to not be censored (in Trump’s case) and to censor (in the social media company’s case given they’re private companies).

Need help? Contact us Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide. (02) 9683 2869. https://www.macarthurwealth.com.au

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Month: July 2021

Share markets retrace falls on virus concerns to finish higher

Markets still fretting over rising virus cases

Interest rates –accentuating the negative

Equity markets fall on virus variant concerns

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Month: July 2021

Share markets retrace falls on virus concerns to finish higher

Markets still fretting over rising virus cases

Interest rates –accentuating the negative

Equity markets fall on virus variant concerns

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Enjoythe ride.

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