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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 2nd 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 3rd quarter 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

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.

The greatest challenges facing future retirees

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

Most working Australians aspire to the idea that they’ll reach a point where they can retire debt-free and with enough money in their superannuation fund. – perhaps supplemented by the age pension – to provide them with a comfortable standard of living in retirement. For many that remains a reasonable aspiration, but a growing range of challenges mean that retirement goals that could easily be achieved a few years ago look like being harder to achieve in the future.

Losing interest?

One of the greatest challenges facing future retirees (and current ones) is the fall in interest rates. Retirees have long relied on term deposits and annuities to provide steady, low risk income. However, an investor who has seen term deposit interest rates fall from, say, 3% to 0.3% has experienced a 90% fall in income. This is driving many investors to look for higher yielding assets such as shares, though it needs to be kept in mind that pursuing this yield means taking on more risk.

Eating the nest egg

The federal government’s COVID-19 Superannuation Early Release Scheme saw 4.9 million applications to withdraw a total of $36.4 billion from super accounts. Many young people withdrew their full balance and will have a hard time playing catch up, even if it will be decades before they retire.

House and home

More retirees are hitting retirement with an outstanding mortgage. In times of low interest rates this isn’t necessarily a bad thing. In fact, the wise use of debt can enhance your financial position at retirement. But if (or when) interest rates rise to historically ‘normal’ levels, anyone without a sound strategy for addressing the situation could see their financial position weaken.

Also of concern is the number of retirees who rent their homes. Even a modest home provides a high level of financial security that is unavailable to the non-homeowner. Single women are over-represented in the non-homeowner category and women are, in general, less well served by

our superannuation system than men. The gender pay gap and time taken out of the workforce to raise families see women retire with 47% less super than men.

Aging and health

Australians are living longer than ever before, with women outliving men by five years. However, those extra years may not come with good health, so aside from funding

an extended normal retirement, retirees will also need to prepare for the cost of in-home or residential aged care.

Australia’s demographic time bomb will see an increasing number of non-working older Australians become dependent on a smaller number of younger Australians to make stuff, provide services and generate the tax revenue needed to run a country. Pressure is likely to mount on retirees to contribute more to the cost of the services

they require. That could be through increases to the age pension age, or greater use of home equity funding, such as reverse mortgages.

Don’t delay

An investor’s most valuable asset is time, and it’s never too early to start planning your retirement. You should also review any plans that may be out of date.

While some of these challenges may seem daunting, there are viable strategies for addressing each one. So don’t delay. Your licensed financial planner will be able to assess your situation and help you develop a strategy to thrive in retirement.

Need help? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide. (02) 9683 2869. 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.

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

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.

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

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.

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 1st 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 1st 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

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.

US Fed Chair reaffirms transitory inflation expectations

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

Global equity markets moved higher this week whilst the Aussie equity market took a breather, no doubt impacted by increasing virus restrictions. 

In local stock news, the Commonwealth Bank sold its general insurance business to the Hollard Group whilst building products supplier Boral announced it will sell its North American business for $2.9 billion, which will give Boral more surplus capital. 

Woolworths shares fell following the market debut of its hotels and bottle shop business Endeavour Group. Shares in Endeavour began trading at $6.50 but closed lower on their 1st day of trading. 
Australian lending data remained strong in May with new lending for housing continuing to rise, whilst lending for household goods and cars continued to trend higher. The proportion of housing lending at fixed rates rose again in May with the 2-year term the most popular. Business lending fell in the month. 

The preliminary Australian retail sales for May from the ABS rose by just 0.1% coming in weaker than expected, while the strict lockdown in VIC saw retail spending fall by 1.5% in the month. Excluding VIC, retail trade lifted 0.7% in May. Overall, retail trade is 7.4% higher in May versus the same time last year. 

Other figures from the ABS showed that more than 25% of firms are having difficulty finding staff as closed foreign borders has stopped employers importing workers. The shortages are particularly severe in the resources / mining services and agricultural industries. 

Iron ore exports played a starring role in the nation’s record trade surplus of $13.3 billion in May with exports to China rising 20% to $12.7 billion, the 3rd consecutive monthly record. 

US central bank chair Jerome Powell tried to hose down some of the hawkish statements made by some of his peers last week in his address to US Congress. Powell outlined why the recent jump in US inflation to a 13-year high would be temporary with the surge created by a steep drop in prices last year (lockdown), higher petrol prices (surging demand and lack of investment), and rapid increases in consumer spending (too much stimulus). He remained confident inflation would fall to the bank’s long-term goal of 2%. 

US Treasury Secretary Janet Yellen, who was previously the central bank chair, has warned of a catastrophic hit to the economic recovery if the US can’t pay its bills on time, asking Congress to extend a July deadline to pay back some of the federal debt. Perplexing given her standing. On the one hand she’s advocating for more and more spending which they can’t afford, exerting significant pressure on her ex-colleagues at the central bank, whilst now advocating for debt ceiling extensions. 

Surveys of purchasing managers show the Euro area’s private sector economy is growing at its fastest pace in 15 years, whilst in Japan manufacturing activity expanded for the 5th month but services continued to shrink. 
Nationals MP Barnaby Joyce has reclaimed the positions of party leader and Deputy Prime Minister after a leadership spill, which saw him defeat Michael McCormack, 3 years after stepping down. The move is aimed at bringing the National party closer to its traditional roots and voter base, potentially at odds with its coalition partner, in order to arrest the party’s decline. 

Covid restrictions increased locally this week with NSW feeling the brunt, which again resulted in more state border closures, due to a “contagious strain” (pretty sure all virus strains are contagious) with 22 new cases reported over the last 48 hours (the equivalent to 0.000343% of NSW) and hospital ICU’s freer than free. The social contract of a “few weeks to flatten the curve” and stop hospital ICU’s from being overloaded has clearly taken on a new life of its own. The strategy has always been elimination, not suppression as they have led us to believe. Elimination isn’t possible. 

The EU has added the US to its so-called “white list” meaning Americans (vaccinated that is) can travel to the region without facing restrictions upon arrival, whilst European leaders are hoping that President Biden will reciprocate. Depending on your understanding of history, interesting to see how quickly we’ve moved to and accepted segregation (vaccinated vs the unvaccinated) and travelling with “papers” with our health records on them. An eye-opener.

As more information is released post the G7 summit, it appears the event wasn’t as friendly and productive as first reported, with member countries in plenty of disagreement when it came to climate policies and curbing any China threats. Hardly surprising given plenty of self-interest when it comes to these sorts of events and gatherings. 

A 6th round of negotiations in Vienna have failed to revive a nuclear deal (a terrible deal) that would lift US sanctions on Iran in exchange for its scaling back atomic activities. The move came a day after conservative cleric Ebrahim Raisi was declared the winner of Iran’s presidential election. 

China continued their crackdown against cryptocurrencies with the central bank saying that banks and payment firms must not provide payment services for crypto-related transactions. These moves come after the government stepped up action to rein in digital mining which is extremely energy intensive.  

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.

Federal Budget 2021

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

Extension of the Downsizer contribution
This currently allows people over the age of 65 who sell their primary residence (which they have lived in for 10 years), contribute up to $300,000 per person ($600,000 per couple) into superannuation. This contribution is not taxable and means you can get extra money into a tax-free
environment, irrespective of your age or how much you have in super. This is great for people who are downsizing or who may be moving into retirement housing. In the recent budget, the government proposed changing the age minimum age from 65 to age 60. Legislation needs to pass
before this occurs.

Increased Super Guarantee
Super guarantee goes from 9.5% this year to 10% next year.

Removing the work test
The Government will allow individuals aged 67 to 74
years (inclusive) to make or receive non-concessional
(including under the bring-forward rule) or salary sacrifice
superannuation contributions without meeting the work
test, subject to existing contribution caps.

Pension Loan scheme
The Government has announced that they will be
increasing the flexibility of the Pension Loans Scheme (PLS)
by allowing participants to access up to two lump sum
advances in any 12-month period up to a total value of 50
per cent of the maximum annual rate of the aged pension.
Based on current Age Pension rates, the total PLS is around
$12,385 per year for singles, while couples combined
could receive around $18,670. The Government will also
introduce a No Negative Equity Guarantee meaning that the
Government will not claim back more than the sale price of
the house used to guarantee the payment when it is sold.

Reduced minimums The Government is allowing minimums to stay half of the
usual minimum for Account Based Pensions. This is a great
opportunity leave funds in high performing Account Based
Pension, while drawing down on lower performing cash.

Need help? Contact us Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide. (02) 9683 2869. 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.

Opportunities for last minute tax planning

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

June provides some opportunities for some last-minute tax planning. Some of the opportunities worth considering are:

Maximise superannuation contributions
This year the maximum deductible contribution to superannuation is $25,000. This figure includes any SG amount plus salary sacrifice. If you are below this figure, you can make a contribution to super and claim it as a tax
deduction. This is available for people up to age 74 (must meet “work test” if over 65). Note, this figure moves to $27,500 next financial year.

There are also catch-up facilities to make contributions in excess of $25,000 per annum. If you have not maxed out $25,000 in the last 3 years and your super balance is less than $500,000, you may be able to put a maximum of
$75,000 into super and claim a deduction. This is a really good opportunity to try and catch up on the years you could not maximise contributions.

Bring forward deductions
If you are paying income protection premiums on a monthly basis, you may want to consider paying 12 months in advance this month. This effectively brings forward your deduction, it may also save you money, as annual
premiums usually save around 10%.

The same theory works if you have an investment property loan. You may be able to prepay the interest for 12 months in advance to bring forward the deduction.

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.

Investors undeterred by US inflation surge

Need help? Contact us Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide. www.macarthurwealth.com.au

Local and global equity markets were flat to slightly higher this week as investors looked through near-term inflation concerns. 

In local stock news, National Australia Bank, Crown Resorts, SkyCity, and Star Entertainment all found themselves in the ire of AUSTRAC as the regulator claims to have found serious problems in how these companies try to prevent financial crimes. 

Electronics design software vendor Altium jumped almost 40% after their board rejected a takeover offer from US software group Autodesk. The news helped lift Australian tech shares during the week. 

Woolworths’ takeover of food distributor PFD Food Services will go ahead despite the competitors’ concerns in the space. The competition regulator has allowed Woolworths to buy 65% of the shares in PFD, which delivers food to cafes, restaurants, hotels, clubs, and more, for $552m. 

Mortgage Choice shareholders have voted to accept a takeover bid from REA (realestate.com) at $1.95 per share, valuing the company at $244 million. Court and other approvals are still required. 
Australian new housing-related lending lifted by 3.7% in April to a new record high, with lending to owner-occupiers rising strongly to 4.3% while lending to investors was up 2.1%. Lending to first home buyers has now fallen for 3 consecutive months, likely due to affordability. Lending in NSW, VIC, and SA were the strongest in the month, whilst both WA and TAS posted falls. 

Australian business leaders reported great trading conditions in May, with the business conditions index reaching a new high for the 2nd consecutive month. 

The Australian government and the Australian banks received an upgrade from credit rating agency Standard & Poor’s with their outlook now considered to be stable. 

US consumer prices soared again with a 5% rise in May on the same time last year, pushing the inflation rate to a 13-year high. The May number came in well above expectations. The 3.8% rise in the core inflation rate, which excludes food and energy prices, was the sharpest increase in nearly 30 years. The US central bank remaining firm that price pressures will wane soon enough. 

The US economy added 559,000 jobs in May, coming in below expectations, but which helped push the unemployment rate down to 5.8%, whilst average wages surged for the 2nd consecutive month in light of severe labour shortages. Reports of employers paying job applicants just to attend the interview….the perverse result of government stimulus gone wrong – more than 12 million receiving unemployment assistance with almost 8 million job openings!

The European central bank confirmed its very accommodative monetary policy stance with interest rates unchanged at 0% given inflation remains well under target. The Bank also confirmed that their quantitative easing programs will continue at the current pace until at least the end of March 2022. 

The Chinese consumer price index rose 1.3% in May, which was less than expected. However, the Chinese revealed that their factory gate prices increased at the fastest pace since September 2008, which is a strong indicator of rising inflationary pressures. 
The Chinese Communist Party now believes it can wean itself off Australia’s resources by rapidly expanding its scrap steel recycling industry. They claim that by using the latest technology it can cut our iron ore exports to them in half in the next 10 years. Ambitious, but hardly surprising given the sky-high prices they’ve been paying for iron ore of late and at a time when Australia-China relations are almost non-existent. 

US President Biden has pitched to Republicans and the G7 the idea of a 15% minimum tax on corporations along with strengthened enforcement efforts. The proposal sets aside the Biden administration’s earlier plan to raise the US corporate tax rate to 28%, which they have no chance getting through the Senate. Doubtful the G7 ever physically puts in place a global corporate tax. A slippery slope once enacted. But we are likely to see some moves on the digital tax front (historically led by Australia), even though the Chancellor of the City of London is already calling for London’s exemption….

The US Treasury Secretary Janet Yellen (ex-US central bank chair) has urged other “rich” nations to keep up spending to support their economies even as pandemic wanes, insisting that US inflation would be elevated but transitory….likely, but not if you maintain emergency level spending indefinitely when there is no emergency! Yellen insisted that more spending was needed to fight against climate change and inequality (so it’s not about the pandemic then). In contrast, the joint statement by the G7 finance minister also stressed the need to ensure long-term sustainability of public finances. 

The US and the EU are now backing a “renewed” push into investigating the origins of Covid-19. “Renewed” is incorrect terminology given there was effectively no investigation into the origins in the first place. Apathy to the origins of the virus have been mind-blowing. The source of the virus matters, both from an accountability perspective and the prevention of future pandemics. Both are calling for more transparency from China, which is unlikely to happen. 

The European Union is said to be ready to consider tougher retaliatory measures against the UK should post Brexit obligations regarding Northern Ireland not be implemented.  

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.

The magic of franking credits in your portfolio

 A franking credit is a tax credit allocated to the shareholder. The tax credit can offset the tax that is due on the dividend.

It’s obvious that investors select investments based on the rate of return they can earn on their funds. For share investments, the rate of return has two components:

1.  Sell the share for gain – assume you purchase 100 shares at $20 each. If you later sold the shares for $40 each you have made a gain of $20 per share. The total gain is $2,000 ($20 for each share) on the original 100 shares;

2.  Earn a return through a dividend. A dividend is a share of company earnings paid to the shareholder. If your share pays a $1.50 on each of your 100 shares, you’ll earn $150.

Keep in mind that your rate of return should be based on the dollars you keep after taxes have been paid. One way to reduce the tax you pay on dividends is by using franking credits.

How do they work?

Franking credits are a tool used by investors to reduce or eliminate the taxation of dividends. Australian companies that pay dividends to shareholders can be subject to double taxation. The earnings are taxed to the corporation at 30%. If earnings are then paid to shareholders in the form of dividends, they are taxed again at the individual’s personal tax rate.

A franking credit is a tax credit allocated to the shareholder. The tax credit can offset the tax that is due on the dividend.

Assume you receive a $100 dividend and your tax rate is 34.5%. The company has already paid 30% tax on its profit. A franking credit of $30 ($100 x 30%) would reduce your tax liability leaving only 4.5% of the dividend income taxable.

That example applies if the dividend is fully taxed or “fully franked”.

A partially franked dividend means that the tax credit covers only a portion of the taxable dividend payment. However, even a partially franked dividend increases your rate of return.

Assume that the franking credit only covers $20 of the $30 in tax. You’re still ahead because you’ve earned $100 – $10 in taxes, or $90.

Reinvesting + Compounding

If you are able to earn more dividend income after tax and reinvest that income, you can also benefit from compounding. Compounding is defined as earning “interest on interest”.

Assume that you’re able to invest the full $100 dividend, rather than just $90. With compounding, that extra $10 in dividends will earn a return. Over time, reinvesting more dividends can greatly increase your total earnings.

Speak to us about how franking credits can benefit your portfolio. If you would like more information about your options, contact Macarthur Wealth Management on (02) 9683 2869 or [email protected] to talk you through your options.

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

General Advice Warning

The information provided 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.

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