Local and global stock markets rose strongly this week, getting a boost from President Trump’s swift recovery from the virus and a potential increase in household stimulus, whilst local stocks got a boost from the Federal Budget.
US Tech stocks came under some pressure as a US Hose committee report laid out damning details of the many anticompetitive practices of the tech giants. The report offered some ideas for controlling them including potential breakups. This action would be more likely in a Democrat / Biden led Senate, even though President Trump has previously threatened to remove some of the special privileges these tech companies have.
In local stock news, Morgan Stanley analysts are expecting the big 4 major banks to record total impairment charges of $2.5 billion in the September quarter. The low number relative to the significant economic contraction can be explained by a combination of JobKeeper, loan repayment holidays, and temporary amendments to insolvency laws. The status of loan repayment deferrals will be key ahead.
The big 4 banks rose strongly this week getting a significant boost from investor sentiment which rose strongly on the back of the Federal Budget. Investors took some comfort that income tax cuts and business incentives will help reduce household and business stress thus shortening or reducing any bad debt cycle ahead.
CSL said subsidiary Seqirus has finalised a deal with the federal government for a possible virus vaccine from the University of Queensland. However, the timeline on this appears well behind the 6 vaccine candidates globally that are in phase 3 trials now.
Oil prices rose strongly this week after OPEC sent a strong signal that the worst was behind the oil industry and that they expect a strong recovery demand in the 4th quarter.
Treasurer Josh Frydenberg handed down the delayed 2020-21 Federal Budget announcing an expected deficit of more than $200 billion and cumulative deficits of almost $500 billion out to 2024-25, in what was the biggest budget since World War II. Significant stimulus in all the right places including income tax cuts to help support consumption and business tax incentives to support business growth and employment, plus manufacturing support and accelerated infrastructure spending. Plenty of assumptions baked into the budget which means more stimulus may be needed.
The RBA kept the cash rate on hold at 0.25% as expected in light of the Federal Budget being handed down on the same day. Expectations are firming that the RBA will announce additional measures at the November meeting including potential small rate cut (unlikely) and further expansion of its balance sheet (i.e. bond buying).
The National Australia Bank monthly business survey showed business conditions rose by a further six points in September. Conditions are now back around the levels seen earlier this year, but remain well below long term averages.
Australian car sales fell sharply in September with demand for new vehicles falling by almost 22% versus the same time last year. To be expected given household employment and income uncertainty ahead.
The Australian trade balance recorded another surplus of $2.6 billion in August, down from $4.7 billion in July and smaller than we’ve seen in recent years. Exports fell 4.2% whilst imports rose 2%. There were large falls in exports of non-monetary (i.e. central bank) gold and exports of services, whilst imports of consumption and intermediate goods rose strongly.
State Street’s global investor confidence index fell in September, with the largest falls coming from Europe and Asia, whilst North America investor confidence rose slightly.
US President Trump recovered swiftly from Covid-19, helped by a range of readily available drug treatments that have been used globally for decades, returning to the White House to continue the election campaign.
US President Trump announced via Twitter that he had called off all negotiations regarding the next US stimulus bill and that any decision will be delayed until after the elections, as both Democrats and Republicans remained too far apart. They actually got pretty close on the dollar value of stimulus, but the Democrat proposal included way too much non-Covid related spending like bailing out the states and repair bills for looting and rioting. He later proposed that he would be willing to sign very specific executive orders to make payments directly to households and provide support to the airline industry.
Prime Minister Scott Morrison announced changes to his front bench following Finance Minister Mathias Cormann’s decision earlier in the year to retire from politics. Simon Birmingham, Minister for Trade, Tourism, and Investment will take on the added responsibilities of Finance Minister and become leader of the Senate, whilst Employment Minister Michaelia Cash will become deputy leader of the Senate. The Prime Minister further announced he will nominate Cormann as its candidate for the secretary general of the OECD.
Australian state borders remain shut and heavily politicised. The Qld premier has vowed to open the border with NSW 1 day after the upcoming Qld election. Victoria remains in stage 4 lockdown whilst reporting less daily cases than NSW. Rumour has it that the WA Premier intends to keep his border shut until April 2021. Australian borders are lines on a map, nothing else. The quicker premiers realise this the quicker the Australian economy can recover.
The 2nd virus wave globally is resulting in increased restrictions across Europe and the US as leaders attempt to bring down daily infection rates. New York will shut schools and businesses in nine neighbourhoods, the French are shutting bars and other restrictions in the Paris region, whilst UK Prime Minister Boris Johnson came under increasing pressure as the country’s test and trace system failed to capture 15,000 positive tests last week. Pleasingly, daily death rates remain largely under control in light of widely used treatments and better testing and tracing.
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