News Updates
AS IT HAPPENS
The US Federal Reserve provided few surprises following its September meeting. While it left interest rates on hold, it confirmed that it will begin what it calls “balance sheet normalisation” next month and continued to signal its expectation that it will raise interest rates again in December and in the years ahead...
Despite being under pressure from tepid economic growth, weak inflation and a surging Australian dollar, the Reserve Bank has left interest rates unchanged at its August board meeting.
The stance was all but universally expected, given RBA governor Philip Lowe made it clear last week that rates would not be moving for a considerable period of time.
The market had priced in a zero possibility of a rate change into its calculations.
The RBA last changed settings in August 2016, when it cut the official cash rate by 25 basis points to the current historic low of 1.5 per cent.
Three reasons not to be fussed...
For much of this year, there has been a surprising divergence between share and bond markets with shares up in response to improving growth and bond yields down in response to weak inflation.
Some feared that either bonds or equities had it wrong, but in a way it seemed like Goldilocks all over again – not too hot (ie benign inflation) but not too cold (ie good growth). However, the past week or so has seen a sharp back up in bond yields – mainly in response to several central banks warning of an eventual tightening in monetary policy.
Over the last week or so, 10 year bond yields rose 0.2-0.3% in the US, UK, Germany and Australia. This may not seem a lot but when bond yields are this low it actually is – German bond yields nearly doubled. This caused a bit of a wobble in share markets.
The big question is: are we seeing a resumption of the rising trend in bond yields that got underway last year and what does this mean for yield sensitive investments and shares? Since central banks are critical in all of this we’ll start there.... Read on
It's now 12 months since the British voted to leave the European Union, an event that some saw as setting off a domino effect of other European countries looking to do the same. This was also followed by a messy election result in Australia, Donald Trump's surprise victory in the US presidential election, increasing concern around North Korea and a steady flow of terrorist attacks.
The combination of which seemed to highlight that geopolitics is now more important, and perhaps more threatening, for investors than had previously been the case. But while political developments have figured highly over the last year, the impact on markets has been benign. Since the Brexit vote, global shares are up 22% and Australian shares are up 13%.
So what gives? This note looks at the main issues. Read more here
The Reserve Bank of Australia (RBA) has decided to hold the cash rate at 1.5 per cent in June, following its board meeting today.
The official cash rate will remain unchanged at 1.5 per cent as a result of today's decision by the RBA.
The decision was widely anticipated, with the futures market pricing in a 92 per cent of no change to the cash rate at the close of trading on Friday.
Rick Maggi
Around May each year I normally get a bit wary about the risks of a pullback in shares. It seems the old saying “sell in May and go away...” is permanently stuck in my mind. And of course shares have had a great run since their global growth scare “bear market” lows in February last year to their recent highs with global shares up 31% and Australian shares up 25%, and both saw good gains year to date to their recent highs of 7% and 5% respectively. Meanwhile, although there have been several calls this year that the so-called “Trump trade” – anticipation of his pro-business policies that supposedly drove the surge in shares since the US election – is over, the risks have intensified lately given the issues around Trump, the FBI and Russia with some fearing the Trump trade is now set to reverse. This note looks at the main issues. Read more
On Tuesday 9 May, the Federal Government handed down its Budget for the 2017–18 financial year.
According to Federal Treasurer Scott Morrison, this year’s Budget is founded on the principles of fairness, security and opportunity. Mr Morrison claims that the government’s proposed measures will raise almost $21 billion in revenue over the next four years, returning Australia’s budget to surplus by 2021.
Here are some of the key Budget announcements. Note that each of these proposals will only become law if it is passed by Parliament...
Read Budget Summary Here (Colonial First State)
Australia's sharemarket could jump as much as two thirds over the next decade, underpinned by a booming superannuation sector and the nation's status as a 'growth haven', according to a new report by Macquarie Research.
The report released today, says the ASX 200 could climb from its current level at just below 6,000 points to 10,000 points over the next 10 years, and to 20,000 by 2040.
Jason Todd, head of Australian macro-economic research at Macquarie, said Australia's super pool, which is expected to rise from $2.3 trillion to around $8.8 trillion over the next 25 years, would provide a "backstop" to equity markets and demand for new listings.
He argues that while many view the Australian market as expensive, it is currently trading at 16 times earnings versus a long-run average of 19 times. The US sharemarket is trading at 29 times.
James McIntyre, head of economic research for Australia at Macquarie, described Australia as a "growth haven", pointing out that economic growth has outstripped other advanced economies by 0.7 per cent over the past 25 years.
...While recent changes to Australia's immigration policies showed it would not be untouched by this shift, which Macquarie sees as structural rather than cyclical, Mr McIntyre said support for immigration was still relatively high compared to other nations. He estimates this support gives the Australian economy a 1 percentage point boost compared to other advanced economies.
The Macquarie report suggests four sectors that should do well over the next few decades: education, tourism, services and agribusiness.
The RBA has opted to leave the official cash rate on hold at 1.5%.
As lenders continue with their out of cycle rate increases, at its board meeting today the Reserve Bank of Australia decided to leave the official cash rate unchanged.
This follows new data released yesterday that indicates the strong Sydney and Melbourne property markets may be close to peaking following APRA's intervention into the levels of interest only and investment lending the banks are funding.
It also appears the Reserve Bank is waiting to gauge the impact of next Tuesday's federal budget on overall economic sentiment.
We're now only a few months away from sweeping changes to the superannuation and pension environment, but for most people, the impact of these changes will be either positive or neutral.
At the end of the day, super remains a very attractive place to save for retirement. So with all of the 'noise' surrounding the super changes coming on July 1st, its important to remember some basic super facts...
Fact 1: While you are building your super, pre-tax contributions and investment earnings will generally continue to be taxed at the low rate of up to 15%, not your marginal tax rate of up to 49%. That alone is a massive advantage in favour of super versus other forms of savings.
Fact 2: When you eventually retire, you can still transfer a generous amount into a superannuation pension, where no tax is paid on investment earnings - and payments are generally tax-free from age 60.
The major changes the are occurring from July 1st, primarily revolve around 'limits' - limits on how much you can contribute to super (pre or post tax), and limits on how much you can start a super pension with (i.e. $1.6 million each).
In addition, the 15% contributions tax will be doubled if your income is greater than $250,000 - this single rule change is an unpopular one, and might be a 'game changer' for some higher income earners.
Moving closer to July 1, there is some work to do, especially if you run your own self-managed super fund. Please, contact your financial adviser asap to see if any of the upcoming changes will impact you, and if so, find out what action you need to take, before it's simply too late.
Rick Maggi
