Investors undecided on the path forward

Thursday 5th March 2020

Investors undecided on the path forward

Thursday 5th March 2020
Written by Chris Lioutas

Good Afternoon and welcome to our weekly blog written by our Investment Consultant Chris Lioutis.
As one client said to me on the phone this morning “Wow what a difference a month makes” followed by “Should we be buying”.  
When we look back at major events affecting equities markets over the last 100 years its clear to see that newspapers play a big part in driving equity price movements. 
The longer the news stories go on the more the markets continue to slide. But what we do see is that markets have always recovered and very often this happens just as quickly. 
Our advice is talk to your adviser about your longer term goals and objectives. We focus our portfolios for growth and income over the longer term and whilst this may be an opportunity to top up your existing holdings this needs to fit in with your longer term objectives. 
Happy reading and have a great weekend. 
Matt & Dave

Markets –

  • Local and global equity markets are currently flat for the week, which is astonishing given the fear and scaremongering created by the press this week.
  • The US 10-year bond yield fell below 1% for the first time ever after the US central bank slashed interest rates.
  • In local stock news, the big 4 Aussie banks all passed on the full RBA rate cut, which will further negatively impact their margins.
  • The Aussie dollar rose this week after the RBA were trumped by the US Fed who cut rates by more and did so outside of their monthly meeting.
  • The oil price remained very low globally, putting downward pressure on Australian petrol prices, but significant upward pressure on OPEC to cut production even further from here. At current prices, many OPEC countries can’t balance their government budgets and most shale reserves are uneconomic at current prices.

Economic – 

  • The RBA cut rates to 0.50% at their March meeting citing economic impacts from the Coronavirus as their main reason. Given almost all central banks around the world will be providing some level of stimulus, the RBA had to cut to ensure the Aussie dollar remains low.
  • The Australian economy expanded at a better than expected 0.5% in the December quarter, with the annual growth figure increasing to 2.2%. Domestic demand remained subdued, but tourism held up better than expected.
  • Australian building approvals have fallen to the lowest monthly total in more than 6 years as approvals for units and townhouses fell sharply in Victoria. NSW and Qld unit approvals both increased, whilst house approvals nationally edged higher.
  • Australia’s current account was in surplus for the 3rd consecutive quarter but fell from $5.5bn to $955m in the December quarter as commodity prices took a tumble.
  • Australian car sales fell for the 23rd consecutive month in February, down 8.2%. Passenger vehicle sales were down more than 16%, but the overall number was somewhat helped by the near 6% gain in SUV sales.
  • The US central bank announced an emergency rate cut of 0.50% prior to their March meeting, which isn’t held until later this month. The move failed to inspire confidence in investors, with it almost having the opposite effect of showing their concerns for the economy.
  • US manufacturing data dipped in February but remained in expansionary territory. US construction spending increased the most in 2 years as investment in both private and public projects increased.

Politics – 

  • Contraction and death rates from the Coronavirus have begun to subside in China whilst the opposite is true for the rest of the world. A function of incompetence and insufficient preparedness by some countries.
  • The US election race heated up this week with strong support for Democrat hopefuls Joe Biden and Bernie Sanders effectively ending the race for the other hopefuls. Biden currently leads Sanders, with investment markets preferring a Biden win.
  • The EU and the UK begin their trade talks with the EU stating they are ready to offer a substantial, ambitious, and wide-ranging partnership, whilst the UK is pushing for comprehensive free trade agreement to be at the core of any agreement.

Chris Lioutas, Director
Insight Investment Consultants

Chris is an independent consultant and is a member of Maxim Private Clients Pty Ltd Investment Committee.

With permission of the author, this article is presented by 
Maxim Private Clients Pty Ltd AFSL No. 511972

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Disclaimer: This material has been prepared without considering any potential investor's or clients objectives, financial situation or needs. This article is of a general nature and does not consider the individual circumstances of its recipients. Any information contained within this publication should not be misinterpreted as advice in any way. Please consult your financial advisor should you have any questions or concerns