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Aussie dollar takes a dive as risks rise

Markets
A mixed and topsy-turvy week for equity markets with Aussie and US markets trading sideways whilst European and Asian markets fell. Investors continued to take profits whilst concerns also rose regarding the US election and rising virus infection rates.

In local stock news, Harvey Norman shares rose after the company reported a more than 30% increase in sales in the last 3 months versus the same period last year. 

Westpac will pay the biggest fine in Australian corporate history, $1.3 billion, for its 23 million breaches of anti-money laundering and counter-terrorism financing legislation. The fine is $404 million more than the bank had provisioned for. 

The Aussie dollar fell against the US dollar this week giving up its strong gains over the last few months. Cyclical and more riskier currencies like the Aussie dollar fell against a backdrop of weakening global economic momentum and signs of increased tension between the US and China. 
  Economic
Australian Bureau of Statistics data showed that payrolls fell by 0.7% over the 4 weeks to 5th September, in contrast to their labour force survey which showed a strong lift in jobs in August. Key differences between the 2 data series. WA saw the strongest recovery whilst VIC had data still worsening. Clear winners and losers on an industry basis. Payroll jobs remain 4.5% lower than in mid-March – 8.3% lower in VIC and 3.1% lower in the rest of Australia. 

With the tapering of JobKeeper and JobSeeker from September 28, the number of workers eligible to receive JobKeeper from their employer could plunge from 3.5 million to 1.4 million workers. For those still eligible, JobKeeper drops from $1,500 a fortnight to $1,200 ($750 for those working 20 hours or less), whilst JobSeeker payments will reduce from $1,115 to $815 a fortnight. 

Federal Treasurer Josh Frydenberg has announced new bankruptcy laws, modelled on the American Chapter 11 code, which will allow firms to trade while insolvent if they owe less than $1 million to creditors. No coincidence in the timing, given JobKeeper and JobSeeker are being wound back. Treasury modelling showed the new rules would cover about 76% of insolvent businesses, with 98% of those having less than 20 staff. 

The Commonwealth Bank has upwardly revised their profile for Australian economic growth, based on a significant upgrade in the 3rd quarter where they expect a 2% expansion. That would mean an economic contraction of 3.3% over the full year versus an expected contraction of 4.3% previously. They also expect growth of 2.5% in 2021 with unemployment at 6.5% by the end of 2021.

Speculation is rising that the RBA may have to lower the cash rate further with the interest rate futures market implying a cash rate of 0.1% by the end of the year versus the current rate of 0.25%.

Deputy RBA governor Debelle indicated in a key speech that the central bank had 4 policy options should the economy need a further boost. These included extending its bond buying program, currency intervention, negative interest rates, and lowering the current structure of interest rates in the economy in terms of government bond yields and the borrowing rate the RBA offers to banks. 

The preliminary estimate of Australian retail trade showed a fall of 4.2% in August, following a rise of 3.2% in July. VIC led the fall with retail trade down more than 12% in the month. The falls in August were led by household goods retailing, which remains 20% above last years’ levels. Key here will be the 1st tapering of JobKeeper and JobSeeker next week. 

The US central bank is considering extending constraints on dividend payments and share buybacks it imposed on the biggest US banks, which are due to lapse at the end of the 3rd quarter. The move would disappoint bank investors. The European central bank ban on bank dividends runs through until December. 

US labour market data showed that while fewer people made new claims for unemployment benefits, the number remained very high

Data showed that Eurozone consumer confidence rose slightly in September, whilst other data showed an upgraded forecast for German economic growth this year. 
  Politics
Covid-19 cases continued to rise as many countries begin to experience their “2nd wave” including parts of Europe and Asia, with some considering increased restrictions. Pleasingly, we’re not seeing a corresponding rise in deaths. More testing, better tracing, better healthcare preparedness, and use of drug treatments all helping. Virus cases in Victoria have been falling whilst also falling in other parts of the country. On the vaccine front, Moderna and Pfizer disclosed detailed information about their late-stage trials, whilst Johnson & Johnson indicated they would have a vaccine soon. 

UK/EU trade talks appear to be improving following the UK government’s tantrum last week. Both sides indicated recent talks were useful and that they’re convinced there’s a deal to be made.

US President Trump has extended his concerns regarding Chinese tech companies and their data security protocols, querying some of the biggest gaming companies in the world including Tencent. He further inflamed US-China tensions in his speech to the United Nations General Assembly where he directly called out the Chinese for spreading the virus. 

US politics continued its toxic run with the death of a Supreme Court justice riling tensions as to the timing of a replacement, with the Democrats threatening to launch new impeachment proceedings against President Trump if he proceeds with a nomination. Under the law, he has every right to, and has the votes in the Senate. This coincided with increased violence by protestors after a Louisville grand jury correctly refused to charge 3 police officers with any serious charges resulting from a police shooting.  

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