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What are Investment Bonds

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

Investment bonds, or insurance bonds as they are also known, are issued by life insurance companies. They have features similar to a managed fund combined with a life insurance policy. They can be a tax effective way to invest if certain rules about contributions and withdrawals are followed.

Investment bonds are used for a range of purposes including:

  • A medium to long term lump-sum or regular savings plan
  • A tax effective investment for investors on high income earners
  • Investment bonds can be taken out by parents, grandparents and the like on the life of a child. The bond can be structured to automatically be transferred into the child’s name at a pre-determined age. This is referred to as ‘child advancement’.
  • Estate planning. Because an investment bond is in essence a life insurance policy, it is subject to life insurance rules. This includes the ability of the owner of the investment bond to nominate one or more beneficiaries to receive the proceeds of the bond in the event of the death of the bond owner. By nominating beneficiaries under an investment bond, the bond does not form part of the estate of the bond owner and may be administered separately to their estate.
  • Deceased estates that are required to invest bequests that will vest with beneficiaries at a later date.

Parties to an investment bond

There three parties to an investment bond; the owner – who subscribes the investment funds, the life insured – who may be the bond owner, or someone else, and the issuer of the bond – the life insurance company.

Some bonds may include fourth party, being a nominated beneficiary. The bond owner may nominate a beneficiary to receive the bond proceeds in the event of the death of the life insured.

Child Advancement Conditions

Where a bond is issued on the life of a child, and its ownership is to vest in the name of the child at a future date, the bond is subject to Child Advancement Conditions. The owner of the bond may nominate an age, up to 25, at which the ownership of the bond will transfer to the child.

10 year rule

Insurance bonds are tax paid investments. This means earnings on the investment are taxed in the hands of the life insurance company at the corporate tax rate. Insurance companies are generally taxed at a rate of 30% however the actual rate of tax payable may be less than 30% when tax deductions, tax offsets, and tax credits available to the life insurer are taken into account.

Investment bonds can be tax effective for long term investors with a marginal tax rate higher than 30%. An investment bond is designed to be held for at least 10 years. If you hold the bond for at least 10 years, the returns on the investment, including additional contributions that meet the 125% rule, will be tax free. In some circumstances, investing in an investment bond for a shorter period may be an appropriate strategy.

Withdrawals

If you withdraw money before 10 years is up, some or all of the income will be taxable and included in the investor’s assessable income. This amount is taxed at the investor’s marginal tax rate – however a 30% tax offset is allowed to compensate for the tax already paid by the life insurance company. Where an investor’s personal tax rate is less than 30%, any unused portion of the tax offset can be used to reduce tax payable on other income in the same financial year.

If you make a withdrawal within the first 10 years, the rate at which earnings in the investment bond are taxed will depend on when you make the withdraw

125% Rule

While investment bonds are often described as a ‘single premium’ or lump sum investment, many investment bonds accept both regular and irregular additional investments. Provided the amount invested in any one year – based on the anniversary of the bond commencing – does not exceed the previous year’s investment by more than 125%, it will be considered part of the initial investment.

If you exceeds 125% of the previous years’ investment, the 10 year period will reset. If you do not make a contribution in any one year, a contribution in following years will reset the 10 year rule.

Investment Options

The life office issuing the investment bond may offer a range of investment options such as single asset funds i.e. cash, fixed interest, shares, property or a range of diversified options. Each option has different investment goals, timeframes, risk profiles and underlying assets.

Disadvantages and Risks of Investment Bonds

The key risks are largely determined by the nature of the investment chosen. Risks to be aware of include:

  • Market risk: The performance of the investment bond will be affected by the assets and securities that it invests into.
  • Fees: These may vary depending on the investment bond and investment options chosen and include management and administration fees and buy-sell spreads.

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.

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How are Granny Flat Rights Assessed by Centrelink and DVA?

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Sometimes living alone may not be the best option and you may wish to move in with your children or another close relative/friend, or you may wish to reassign ownership of your home. The arrangements can be either formal or informal and you receive the right to accommodation for life.

This might involve you moving into someone else’s home or into a granny flat built on their property. Alternatively you can transfer ownership of your home to that person and continue to live in the home.

This arrangement may involve a gift of money, payment of expenses or transfer of the title of your home.

Normally the transfer of money or assets would come under Centrelink/Veterans’ Affairs (DVA) gifting rules. But the granny flat rules determine how this transfer is assessed and the interaction with gifting rules.

How are Granny Flat Rights Assessed by Centrelink/DVA?

You should discuss your individual circumstances with your local Centrelink/DVA office before taking any action to determine how you will be assessed.

If you pay money that equals the purchase or construction costs or you transfer full ownership of your home, this is deemed to be a ‘reasonable amount’. Gifting rules do not apply.

If transfer additional amounts Centrelink/DVA will determine the ‘reasonable amount’ for the granny flat right using a formula with a conversion factor (shown below) based on your age and the maximum rate of age pension (couple rate). Any amount paid or transferred over this reasonable amount is a gift and is assessed under deprivation rules.

Deprivation applies if the amount deemed to be a gift (single or couple combined) is more than:

  • $10,000 per financial year, or
  • $30,000 over a five year rolling period (includes current financial year and the four previous financial years)

Deprived assets are assessed against the income and assets tests for the next five years and may have a negative impact on your Centrelink/DVA entitlements.

If you move out of the granny flat within five years and the reason that you moved could have been anticipated at the time the right was established, gifting rules may be applied retrospectively.

Some details to be aware of include:

  • For Centrelink/DVA purposes, granny flat rights do not need to be written agreements however Centrelink/DVA may request a statement that the arrangement has begun
  • The amount paid or transferred for the granny flat right is an exempt asset (except deprived asset amounts) and you are assessed as a homeowner if the amount paid is above the extra allowable amount of $224,500 (2022/2023) If you pay $224,500 or less you are treated as a non-homeowner and the amount paid is an assessable asset
  • If you are transferring ownership of your home Centrelink/DVA may use the value accepted for stamp duty or may choose to receive a valuation from the Australian Valuation Office

If you have paid money for construction of the granny flat you need to provide a copy of the building contract to Centrelink/DVA to verify the construction cost

Other Things You Should Know

Granny flat arrangements may not work out. You may wish to formalise the arrangement to protect yourself by having a solicitor draw up an agreement and identify any other details. This agreement may include:

  • The quality and type of the accommodation to be provided
  • Whether the accommodation is in a particular property or in any property
  • How the granny flat right can be dissolved if the arrangement is no longer suitable

You should also ask your solicitor to review and formalise your estate planning arrangements such as your Will and Powers of Attorney.

The value of the granny flat can be a significant proportion of your estate so it is important to prevent potential rifts between family members. You may find it difficult to get your money back if you no longer want to live in the granny flat.

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.

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Gifting and Centrelink

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

A person who is eligible for Centrelink or Veterans’ Affairs (DVA) payments is expected to use their own financial resources to support themself so the ability to gift to others without an impact on entitlements may be limited.

Centrelink/DVA entitlements are based on two tests – an income test and an assets test. Gifts can reduce assets (and also the assessed income) and may help to increase the amount of Centrelink/DVA payment.

A single person or couple combined is allowed to gift $10,000 per financial year, with a limit up to $30,000 over a five year rolling period. If more than this amount is gifted the excess amount is called a ‘deprived asset’.

A deprived asset is counted as an assessable asset under the assets test and is subject to deeming under the income test for five years from the date of the gift. This may affect your Centrelink/DVA payment.

When looking at the $30,000 limit, Centrelink will also take into consideration amounts gifted in the previous five years.

Before making the gift it is important for the person to ensure they can afford to do this and that they have enough money to meet their own needs. The amount given away may be more than the additional payment received from Centrelink/DVA. The motivation needs to be to help someone financially, not just increase Centrelink/DVA benefits.

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.

Macarthur Wealth Management Links

Blog  https://www.macarthurwealth.com.au/insights/

Facebook  https://www.facebook.com/macarthurwealthmanagement

Youtube   https://www.youtube.com/channel/UCHde08SRVuDPchprbz0CE_g

Twitter  https://twitter.com/MacarthurWealth

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Retirement: https://www.macarthurwealth.com.au/account-based-pension/

What is a transition to retirement (TTR) pension

TTR strategies make use of a transition to retirement (TTR) income stream, which can be started as soon as a person reaches preservation age, without having to satisfy a full condition of release like retirement. A TTR income stream is subject to the same regulations as an account-based pension however the following limitations apply:

  • In general, lump sum withdrawals are not allowed.
  • Each fiscal year, there is a 10% restriction on income stream payments.

The most popular TTR strategy is the usage of concessional contributions along with it.

The advantages of employing a TTR approach can include:

  • Maximizing a superannuation balance tax-effectively in the years leading up to retirement (TTR and concessional contributions strategy).
  • Improved superannuation benefits by balancing the superannuation accounts of a couple’s members.
  • Reducing debt, including mortgages.
  • Cutting back on work hours before retiring and making up the difference in income with tax-efficient or tax-free income stream payments.

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.

Macarthur Wealth Management Links

Blog  https://www.macarthurwealth.com.au/insights/

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Retirement: https://www.macarthurwealth.com.au/account-based-pension/

How to set goals

The starting point for any plan is to set your personal goals. Financial goals are likely to be different for each person and need to reflect your specific preferences, aspirations and needs. Your goals may vary from short-term goals (less than one year) like buying a car, paying off your debt or going on a holiday, medium term goals (1-3 years) such as saving for your children’s’ education or long-term goals (5 years or more) like saving for a comfortable retirement and leaving behind a legacy.

Your goals will be more real and achievable if you can apply the following attributes:

  • Specific: Make them specific to you and your family.
  • Measurable: Ensure there is a measurement in place to determine whether the goals have been met.
  • Achievable: The goals need to be achievable so while you may set a stretched target which requires you to be diligent don’t set the target too high.
  • Realistic: Your goals can be an aspiration but must still be grounded.
  • Time-targeted: You need to set time targets to achieve your goals.

Once you have determined where you are heading, you can work with your financial planner to develop the pathway to achieving your goals.

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.

Macarthur Wealth Management Links

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Retirement: https://www.macarthurwealth.com.au/account-based-pension/

Claiming a tax deduction for carry forward concessional contributions

From 1 July 2018, individuals who don’t fully use their basic concessional contributions cap in a financial year, accrue an unused concessional contributions cap amount.

Unused concessional cap amounts are available to carry forward and (if eligible) apply (use) in any of the following five financial years.

If an unused concessional cap amount accrues during a financial year and is not then applied in any of the five following financial years, it expires.

USING CARRY-FORWARD CONCESSIONAL CONTRIBUTIONS

A individual can carry forward and apply available unused concessional cap amounts from any of the previous five financial years to increase their concessional cap in the current financial year if:

  • their concessional contributions for the current financial year exceed the basic concessional cap (currently $27,500), and
  • their total superannuation balance (TSB) just prior to the start of the current financial year is less than $500,000.

Where an eligible member makes concessional contributions that exceed the basic concessional cap, the amount necessary to accommodate the contribution is taken from the earliest unused concessional cap amounts within the five-year period first.

Last updated in September 2022

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.

Macarthur Wealth Management Links

Blog  https://www.macarthurwealth.com.au/insights/

Facebook  https://www.facebook.com/macarthurwealthmanagement

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Retirement: https://www.macarthurwealth.com.au/account-based-pension/

Uncategorized

Ten tips for setting a good budget

To put you on the path to building your wealth you need to start saving money. This may mean working out how to find more money. The best way to do this is to set yourself a budget.

Setting a budget is important for everyone no matter your age or how much money you have. It is especially important for people who are struggling to meet their goals or who keep building up debt.

A budget is not about just cutting expenses. It is about finding a good balance between your income and your expenses and deciding what is important to you so that you have money left over to save.

A budget is not a fixed forever plan. You can continue to make adjustments over time until you reach a comfortable outcome and have a good strategy in place that will meet your goals.

There are two sides to a budget:

  • Your income – includes income from all sources such as salary, interest, rental income and dividends, but only include your regular income and make sure you use after-tax income or allow for tax payable in your expenses.
  • Your expenses – includes mortgage repayments, bills and general living expenses.

Tip

Go through the following documents to check you have captured all of your income and expenses:

  • Bank account statements
  • Credit card statements
  • Pay slips (for both income and deductions)
  • Cheque book details
  • Expense receipts
  • Bills and insurance certificates

You could also consider keeping a diary to record all your expenses – and don’t forget all the little ones as this is where you can often make some significant savings.

Setting a budget is a simple step but sticking to the budget can be harder.

Below are ten tips for setting a good budget:

  1. Make it realistic or you will never stick to it
  2. Budget an amount for fun, leisure and personal expenses so you can avoid impulse buying
  3. Save your pay rises, bonuses, special payments or tax refund
  4. Look for small savings – for example, take your lunch to work, or use internet banking to reduce bank fees.
  5. Pay by cash or EFTPOS to avoid credit card fees (and also avoid accumulating debt)
  6. Reduce fees and charges – combine bank accounts to reduce fees
  7. Put your change into a savings jar at the end of every day
  8. Shop around and compare prices on insurance policies. Look for companies that offer discounts for multiple policies
  9. Use lay-by options instead of debt and credit cards
  10. Update your budget each year

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.

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Equity markets rise on Fed speak

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Local and global equity markets trended higher this week with investors reading into US central bank minutes that a rate hike slowdown or pause may be on the cards come the September quarter.

In local stock news, Crown Resorts shareholders overwhelmingly approved its takeover by US private equity group Blackstone for $13.10 a share.

Incitec Pivot shares fell after the company announced plans to spin its fertiliser business into a new company, Incitec Pivot Fertilisers, and will rename itself Dyno Nobel, after its mining explosive subsidiary. Not sure how this benefits shareholders.

Tabcorp traded this week as two separate companies for the first time, with the lotteries business spun out and trading as The Lottery Corporation, whilst the wagering assets remain with Tabcorp.

BHP shares fell during the week as its share went ex-dividend from the demerger of its oil business to Woodside.

Fisher & Paykel Healthcare shares fell after the respiratory products company declined to give any guidance for fiscal 2023, given the uncertainty regarding covid in the period ahead and the possibility its hospital customers might face more personnel shortages.

The Aussie dollar rose against the US dollar on rising expectations of the US central bank fading their rate hike program later this year.

The oil price took another leg up this week as US petrol demand is likely to be high over Memorial Day long weekend whilst US officials talked up banning US oil exports.

Economic

Total Australian construction work done fell by 0.9% in Q1 with building construction the major drag. Engineering construction also contracted. Both private and public sector work fell.

Australian private sector capital expenditure volumes fell by 0.3% in the 1st quarter, with both mining and non-mining investment falling by the same amount. The outlook for business investment remains strong, but headwinds of capacity constraints and rising costs will hurt.

A key US central bank official said they expect the bank to raise interest rates to 2% by August. That would imply another two 0.50% rate hikes over the coming months, which the market has already priced in. Uncertainty remains as to where rates head after that, with some members citing a pause or slowdown in rate hikes may be necessary come September.

The US central bank minutes from their May meeting showed broad agreement from members regarding moving rates higher and faster towards a more ‘neutral’ stance, that the US economy was very strong with a tight labour market, but that risks remain with the Ukraine conflict, China’s covid-zero stance, and restoring price stability given very high inflation.

US existing home sales in April fell 2.4% from March levels, boosting inventory of unsold existing homes to 1.03 million homes. First home buyers were the largest component of sales at 28%.

The US economy contracted at an annualised 1.5% in the first three months of 2022, slightly worse than initial estimates of a 1.4% decline, with the biggest drag coming from trade.

Most market predictions now have a 30-40% of the US entering recession sometime in the next 2 years. The US central bank will need to convince investors it can tighten monetary policy and reel in inflation without tipping the economy into a recession. Not an easy task.

A US manufacturing indicator fell in May from the previous month, coming in at the lowest level in 4 months and below market expectations. The reading remains at expansionary levels, but the pace of expansion was weight down by hikes in selling prices and concerns over higher rates. The rate of growth in new sales was the slowest since August 2020.

The European central bank president said that the bank was likely to lift the Euro area deposit rate out of negative territory by the end of September and could raise it further. Recession fears will need to be overcome.

UK consumer confidence fell to its lowest level in at least 48 years after surge in cost of living. Falling consumer confidence would usually result in more fiscal stimulus, but it can’t when you’ve got inflation surging and central bank needing/wanting to raise rates.

Chinese banks cut a key interest rate for long-term loans by a record amount. The cut is a significant move to boost loan demand. The lower rate will be applied to new mortgages immediately whilst existing mortgages won’t be repriced until next year at the earliest.

China will offer more than US$21 billion in additional tax relief mainly aimed at businesses as it seeks to offset the severe impact of covid-zero policies on the economy.

Politics

Labor’s Anthony Albanese is the 31st prime minister of Australia after the weekend’s federal election results with Labor yet but likely to form government, breaking the Coalition’s almost decade long run. Interestingly, both major parties received some of the lowest primary vote totals seen in some time. Four seats are still yet to be called.

The Chinese Premier gave his starkest warning yet about the economy as it comes under severe strain from covid outbreaks and lockdowns. He said the situation is worse than in 2020 and urged more efforts to reduce a soaring unemployment rate.

The US energy secretary said the Biden administration hasn’t ruled out a ban on oil exports to tame domestic fuel prices.

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.

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US Fed hawkishness sees US dollar falter

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A mixed week in equity markets with global developed markets lower, the Australian market flat, whilst Asian and emerging markets saw investor support as the US dollar weakened.

In local stock news, Viva Energy shares rose to all-time high after the Shell petrol station operator announced that it was enjoying unprecedented profit margins from its Geelong refinery, which allows the company to import crude oil rather than rely on overseas refineries.

Brambles shares surged to an 8-month high after the pallet’s giant confirmed it had received an unsolicited tentative takeover offer from global private equity firm CVC Capital Partners. CVC later confirmed that would not be pursuing a takeover. Aussie companies with lazy boards/management getting picked off by cashed-up foreign raiders. More to come.

James Hardie shares fell after the building products company announced sales of US$3.6 billion in the 12 months to end of March, up 24% from a year ago but slightly below market expectations. The company reaffirmed it’s 2023 financial year guidance.

Andrew Forrest will take the reins of the company he founded almost 20 years ago after an extensive global search for a new leader failed to yield a better alternative, as current CEO Elizabeth Gaines exits the role in August.

Woodside Petroleum shareholders overwhelmingly approved the company’s $41 billion merger with BHP at Woodside’s annual general meeting in Perth. Shareholders also backed a name change to Woodside Energy.

Australian wages grew by 0.7% during the March quarter according to the Australian Bureau of Statistics. The lift was slightly below market expectations but did move the annual rate up to 2.4%. Private sector wages came in above public sector wage growth in the quarter. Interestingly, wages growth is not yet broad based and real wages growth (net of inflation) are deeply negative.

The Australian economy added 4,000 jobs in April, coming in well below market consensus, with a sharp decline in part-time employment. By state, there were small gains in NSW and VIC, whilst there were falls elsewhere. The unemployment rate was unchanged at 3.9% given the downwardly revised March number.

The ANZ bank has made a major revision to its house price forecasts for 2022 with a fall of 3% now expected on average across the 8 capital cities. Contrast that with their previous prediction of an 8% rise in 2022. The Australian housing market is always very sensitive to rate movements given the predominance of variable rate loans.

The US central bank chair reaffirmed that the bank is likely to raise interest rates by 0.5% at each of its next 2 meetings in June and July in an attempt to bring inflation under control. He said the bank was prepared to hike until there was clear and convincing evidence that inflation was starting to roll over. Those signs may be nigh.

US data showed signs of economic resilience, with US shoppers increasing retail spending in April for the 4th consecutive month, whilst US home prices reached a high in April. In contrast, new applications for unemployment benefits rose for the 3rd week in a row whilst the number of home sales fell.

According to the Institute of International Finance, the world economy will essentially flatline this year as Europe heads towards recession, China slows, and US financial conditions tighten.

Annual inflation in the UK jumped to 9% in April, the highest level since 1982, prompted by rising prices for electricity, gas and other fuels, and second-hand cars, in another sign consumers’ living standards continue to squeeze. The April reading compares with March’s 7% reading.

China’s economic activity is collapsing in the face of tough covid-zero rules with industrial output and consumer spending sliding to the worst levels since the pandemic began. Expect a big bazooka of stimulus over the coming weeks and months, which is likely to coincide with an easing of covid restrictions in some of their major cities.

Some European Union nations are wanting to delay a push to ban Russian oil so they can proceed with the rest of a proposed sanctions package if the bloc can’t persuade Hungary to back the embargo. Germany has said they will stop importing Russian oil by the end of the year regardless of the bloc’s moves. Russia’s oil revenues are up 50% this year even with various trade restrictions. Whilst there is general agreement that Putin needs to be punished, likely energy rationing and soaring energy bills don’t sound like a good idea for some European countries.

NATO members have rallied around Finland and Sweden after they announced plans to join the alliance, marking another dramatic change in Europe’s security structure.

China’s top economic official gave an unusual public show of support for digital platform companies, suggesting Beijing may be ready to let up on a long campaign against the tech giants. A good move, but also shows Beijing getting desperate on the economic growth front.

The US is preparing a military aid package for India to deepen security ties and reduce the country’s dependence on Russian weapons, according to people familiar with the matter. If true, it would make India one of the largest recipients of such aid behind Israel and Egypt.

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.

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Commodity prices fall on Chinese growth concerns

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 were flat to weaker this week on concerns regarding rising global recession risks, with Chinese economic growth fears hitting commodity prices.  

In local stock news, Macquarie Group has reported a net profit after tax of $4.7 billion for the year to end of March, an increase of 56% on the previous year. The firm’s assets under management reached $775 billion during the period, up 37% on a year earlier. The big boost came from the commodities and global markets businesses.  

REA Group shares fell after the realestate.com.au operator predicted national listings would be down in the 4th quarter on the same time last year. But the company maintained that the Australian property market is very healthy with solid fundamentals.  

Westpac reported cash earnings of $3.1 billion in their half-year result, a 71% increase on the same time last year. However, cash earnings declined over the year which the company attributed to competitive pressures on net interest margins.  

CBA announced a $2.3 billion in net profit after tax, with income down 1% on continued margin pressure. The bank also reported a steady operating performance and volume growth compared to the previous corresponding period, with household and business deposits up $8.5 and $2.2 billion respectively. Home lending was up $6.9 billion with business lending up $3 billion.  

Magellan Financial Group shares fell after announcing it had sold its 11.6% stake in Mexican fast food restaurant chain Guzman y Gomez to Barrenjoey Capital for $140 million, a 36% premium to its entry price 16 months ago. Magellan expects to book a pre-tax profit on the sale of $34 million.

Magellan also announced a new CEO, hiring David George from the Future Fund. He will start in August.  

Pendal Group shares were up after the investment manager hiked its interim dividend by 24% as last year’s acquisition of a US-based investment manager has proved successful.  

The oil price fell sharply early in the week on recession fears before rising on supply concerns to finish the week flat.  

The Australian dollar fell this week as commodity prices took a breather whilst the US dollar rallied again.
Economic
The RBA has materially upgraded their forecast for underlying inflation putting the core figure at 4.6% at end of 2022, with underlying inflation then moderating over 2023 but remaining above the RBA’s 2-3% target band. The RBA also expects wages growth to continue increasing and reach 3.7% by mid-2024.  

The Australian trade surplus rose to $9.3 billion in March, above market estimates. Exports were flat due to a 21% fall in non-monetary gold. Other export data showed rural goods fell, meat rose, and non-rural rose. Imports fell by 4.6% after a 13.4% lift in February, with falls in consumption, capital, and intermediate goods. Net exports will likely detract from economic growth.  

Building approvals decreased by 18.5% in March, following a large bounce in February. Approvals are now down by 35.6% over the year. The drop in monthly approvals was driven by a drop in multi-unit dwellings with private houses also falling but to a lesser extent. QLD and WA were the only states to record increases.  

Australian retail trade volumes increased by 1.2% in the quarter and are now 10.7% above pre-covid levels. Increased prices are contributing to the strong growth, which is also being buffeted by strength in the household sector.  

Australian consumer sentiment fell sharply, down by 5.6% in May. In contrast, business conditions improved in April, but confidence did ease, with both remaining above their long-term averages. The divergence between consumer sentiment and business confidence is very wide.  

The US annual inflation rate slowed to 8.3% in April, but still came in above market expectations of 8.1%. Energy prices continued to rise, but came in below March’s increase, whilst food prices jumped the most since April 1981. Prices for shelter and new vehicles also rose slightly. Interestingly, consumer prices rose, coming in slightly above expectations, but well below March’s 16-year high.  

The latest US jobs report showed that the US economy added 428,000 jobs in April and that the unemployment rate remained unchanged at 3.6%. New jobs came in above expectations whilst the unemployment rate came in slightly above expectations.  

In contrast, private US businesses hired 247,000 workers in April, the least since April 2020, and well below forecasts of 395,000.  

China’s export growth slowed to the weakest levels in almost 2 years whilst imports barely changed in April, as tighter and wider virus curbs halted factory production and crimped domestic demand. The weak figures show China’s trade sector, which accounts for more than 30% of economic growth, is losing momentum as Covid-zero policies hit home.  

Chinese inflationary pressures eased last month pointing to a moderation in core inflation.
Politics
Leaders of the Group of Seven most industrialised countries pledged to ban the import of Russian oil in response to President Putin’s war in Ukraine. The US and UK have already announced bans on Russian oil imports and Germany has backed a proposal for the EU to get rid of it by January.

However, the Italian PM said European companies will be able to pay for Russian gas in Rubles without breaching sanctions, dismissing EU guidance to the contrary.  

The US House approved a more than US$40 billion emergency Ukraine spending bill with broad bipartisan support. The legislation is significantly larger than the package sought by President Biden and includes funding for weapons, economic, and humanitarian aid. 

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.

Macarthur Wealth Management Links

Blog  https://www.macarthurwealth.com.au/insights/

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