Insights

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 1^st 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 3^rd 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 5^th 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 6^th 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

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Disclaimer

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.

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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 2^nd 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 2^nd 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.

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Disclaimer

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 info@macarthurwealth.com.au 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

Aussie inflation print gives the RBA more room

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

A mixed week for equity markets with the US market trending a little higher whilst other markets were flat to slightly lower.

Of the more than half of the US’s largest 500 listed companies that have reported so far, 87% have beaten analysts’ earnings estimates, with one data provider now predicting a 45% jump in profit growth.

In local equity markets, AMP said it will spin off and list the private markets part of AMP Capital, AMP’s funds management arm. Private markets relates to both infrastructure and property. The proposed demerger comes after a part asset sale of the business fell through. The demerger is expected to be completed in 1^sthalf 2022.

Health insurer NIB said they had a 3.7% increase in Australian health insurance customers since the start of the financial year and that there were fewer claims than expected. The strong result more than offset declines in travel-related insurance.

Tabcorp has received a $3.5 billion offer for its wagering business. The improved offer from the UK based sports betting group Entain, which owns Ladbrokes, was unsolicited.

Coles reported its first drop in quarterly sales in more than a decade as spending returned to normal after Covid panic buying and lockdowns. The company reported a 5.1% drop in 3^rd quarter sales to $8.76 billion.

Retail group Premier Investments has poached current JB Hi-Fi CEO Richard Murray to take over from Mark McInnes who had decided to step down. Murray will begin in his new role from October 4, whilst his replacement at JB Hi-Fi is Terry Smart, who was the electronics retailer boss from 2010-2014.

Link Group has confirmed that the consortium of private equity groups has withdrawn their almost $3 billion takeover proposal. The consortium made multiple offers through 2020 with the last offer being $5.40 per share. Link is preparing to sell its 44% stake in PEXA, the online property settlement platform.

The oil price rose this week due to optimistic expectations about demand from OPEC+ and rebalancing fuel inventories in the USA.

Australia’s consumer price inflation rose by 0.6% in the 1^st quarter, lifting the annual rate to 1.1%. Transport prices were the main driver of inflation in the quarter, with modest gains in food prices. The print came in below expectations and gives the Reserve Bank of Australia continued breathing room to maintain policy support.

The Australian university sector remains under pressure as almost every state has written off plans for international students to return to Australia as the cost of quarantine becomes an issue. New research shows that there was a 66% spike in international student enrolments over the past decade. The number of international students in the country continues to fall, whilst there has been a more than 5% decline in enrolments and a 23% decline in new students. International education is a $38 billion economy in Australia, whilst the loss of students also accounts for a missing $21 billion in spending locally.

Australian residential property price growth has slowed this month, but the strong momentum remains. Sydney prices rose 2.3% over the last month, followed by 1.8% in Brisbane, 1.5% in Melbourne, and 0.9% in Perth. Auction clearance rates remain high. Sydney median house prices have broken through the $1.3 million mark. New figures also show that less than 5,000 loan deferrals remain outstanding – a significant improvement, but still represents more than $1.33 billion worth of mortgages.

The US central bank left rates near 0% whilst upgrading its assessment of the economy and acknowledging that inflation is rising. But they reiterated their stance to keep policy settings accommodative.

The US House of Representatives passed a Democrat proposed legislation that would make Washington D.C the 51^st state in the US, with the house voting along party lines. The legislation effectively seeks to usurp the US Constitution and would make it easier for Democrats to win future elections given their historical support in D.C. The legislation has no chance of passing the Senate but sets the tone for the Biden/Democrat agenda.

The virtual climate summit of 40 world leaders saw President Biden pledge more aggressive targets saying the US will aim to cut greenhouse gas emissions by 50-52% from 2005 levels by 2030 and encouraged other countries to get more aggressive. Problem is most countries don’t have the wealth of the US nor do they have a central bank able and willing to print money to finance the cost (which will be exorbitant) of meeting these targets. Each country will need to move at their own sensible pace. Australia has committed to a 26-28% reduction over the same period. In contrast, China will continue with greenhouse gas increases through to 2030.

Australian exporters are bracing for more pressure and sanctions from the Chinese government after our Federal Government cancelled Victoria’s Belt and Road Initiative deal with Beijing. The total volume of exports to China has held up, thanks to a sky-high iron ore price, totalling $96 billion over the 12 months to the end of February. Outside of iron ore revenue, exports to China have fallen almost 30%.

India reported the world’s highest daily tally of coronavirus cases this week as virus cases and deaths rose, not helped by poverty/living conditions, the inability to physically distance with a population of that size, and an underfunded hospital system. In Japan, 4 prefectures were in the spotlight, including Tokyo and Osaka, as the government considered short and strict states of emergency for each. Meanwhile, the European Union (EU) has said that American tourists that have been fully vaccinated will be able to visit Europe over the summer. The EU also announced that 1 in 4 people in the union have now received their first vaccine dose. Closer to home, we saw a snap 3-day lockdown in parts of WA following just two cases.

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.

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.

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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/

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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.

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