Marissa

Economic Update Video – April 2020

Marissa · Apr 4, 2020 ·

The health and economic impacts of the coronavirus increased exponentially in March, as did the response of national governments and central banks, below is a video to assist you to stay up to date with the latest indicators.

Global markets fell during March, reacting to the ongoing situation and government stimulus measures with volatility.

The cash rate for April has been left unchanged, however the RBA cut the cash rate twice in March –

4/3/2020 decreased to 0.5%

20/3/2020 decreased to 0.25%

The RBA also began buying government bonds to bring yields down in line with the cash rate.

The RBA additionally offered a term facility to banks so they can supply credit to small and medium businesses.

In these unprecedented and challenging times we are here for you.

Coronavirus safety net expanded

Marissa · Mar 15, 2020 ·

In a rapidly evolving response to the spread of COVID-19, the Federal Government’s second support package announced on 22nd March, has flicked the switch to more income support for retirees and workers.

Between the first $17.6 billion package announced on March 12, and this latest $66.1 billion package, the emphasis has shifted from stimulus aimed at keeping businesses up and running, to support for individuals to get them through the crisis.Importantly, casuals and sole traders along with employees who lose work due to the Coronavirus shutdown will receive help.

Retirees affected by falling superannuation balances and deeming rates out of line with historically low interest rates have also been offered some reprieve.

Minimum pension drawdowns halved

Self-funded retirees will be relieved the Government has moved quickly to temporarily reduce the minimum drawdown rates for superannuation pensions.

Similar to the response in the wake of the Global Financial Crisis, minimum drawdown rates for account-based pensions and similar products will be halved for the 2020 and 2021 financial years.

This means retirees will be under less pressure to sell shares or other pension assets in a falling market to meet the minimum payments they are required to withdraw each financial year.
For example, a 75-year-old retiree will now be required to withdraw a minimum of 3% of their super pension balance this financial year and in 2020-21, instead of the usual 6%.

The new rates are in the table below:

Age of member	Minimum drawdown rate (for the 2019-20 and 2020-21 income years)
Under 65	2%
65-74	2.5%
75-79	3%
80-84	3.5%
85-89	4.5%
90-94	5.5%
95+	7%

Deeming rates cut again

In addition to the cut in pension deeming rates announced in the first stimulus package, the Government has cut deeming rates by a further 0.25 percentage points. This reflects the Reserve Banks latest cut in official interest rates to a new low of 0.25%.

Deeming rates are the amount the Government ‘deems’ pensioners earn on their investments to determine eligibility for the Age Pension and other entitlements, even if that rate is lower than they actually earn.

This move will bring deeming rates closer in line with the interest rates pensioners are receiving on their bank deposits, especially those with lower balances.

From 1 May 2020, deeming rates will fall to 0.25% on investments up to $51,800 for singles and $86,200 for couples. A rate of 2.25% will apply to amounts above these thresholds (see table).

Singles		Couples
Investment value	Deeming rate	Investment value	Deeming rate
Up to $51,800	0.25%	Up to $86,200	0.25%
Over $51,800	2.25%	Over $86,200	2.25%

Early access to super

More controversially, the Government has also announced it will allow anyone made redundant because of the Coronavirus, or had their hours cut by more than 20%, to withdraw up to $10,000 from their super this financial year and a further $10,000 in 2020-21.

Sole traders who lose 20% or more of their revenue due to the Coronavirus will also be eligible.

The Treasurer said the process is designed to be frictionless, with eligible individuals able to apply online through MyGov rather than going to their super fund.

While this provides an additional safety net for individuals and families who face the loss of a job or a significant fall in income, we do urge our clients to consider accessing their super as a last resort.

Taking a chunk out of your retirement savings now, after a big market fall, would not only crystallise your recent losses but it also means you would have less money working for you when markets recover.

So before you do anything, speak to us and look at other income support measures.

Relief for those out of work

All workers, including casuals and sole traders, who lose their job or are stood down due to the Coronavirus shutdown, will be eligible for a temporary expansion of Newstart (now called JobSeeker) payments to new and existing recipients.

Individuals who meet the income test will receive a Coronavirus supplement of $550 a fortnight on top of their existing payment for the next six months. This means anyone eligible for JobSeeker payments will receive approximately $1100 a fortnight, effectively doubling the allowance.

This measure includes people on Youth Allowance, Parenting Payment, Farm Household Allowance and Special Benefit.

Importantly, the extra $550 will go to all recipients, including those who get much less than current maximum fortnightly payment because they have assets or have found a few hours of part-time work.

Support for pensioners

Pensioners have also received additional support. On top of the $750 payment announced on March 12, an additional $750 will be paid to any eligible recipients, as at 10 July 2020, receiving the Age Pension, Veterans Pension or eligible concession card holders.

This payment will be made automatically from 13 July 2020.

More support to come

This latest support package is unlikely to be the last as the Government responds to a rapidly evolving health crisis and progressive shutdown of all but essential economic activity.

If you have any questions about your investment strategy or entitlements to government payments, please don’t hesitate to call.

Information in this article has been sourced from https://treasury.gov.au/coronavirus/households

2019 Year in Review: A year of highs and lows

Marissa · Jan 7, 2020 ·

It was a year of extremes, with shares hitting record highs and interest rates at historic lows. Yet all in all, 2019 delivered far better returns than Australian investors dared hope for at the start of the year.

The total return from Australian shares (prices and dividend income) was 24 per cent in the year to December.ⁱ When you add in positive returns from bonds and a rebound in residential property, Australians with a diversified investment portfolio had plenty to smile about.

Humming along in the background, Australia entered a record-breaking 29^th year of economic expansion although growth tapered off as global pressures mounted.

Global economy slowing

The US-China trade war, the Brexit impasse and geopolitical tensions weighed on the global economy in 2019. Yet late in the year optimism grew that US President Donald Trump would sign the first phase of a trade deal with Beijing. The re-election of Boris Johnson’s Conservatives in the UK also raised hopes that the Brexit saga may finally be resolved.

The US economy is in good shape, growing at an annual rate of 2.1 per cent in line with inflation and a jobless rate of just 3.5 per cent. China has fared worse from the trade tensions, with annual growth of 6 per cent its weakest since 1992.

In Australia, growth slipped to an annual rate of 1.7 per cent in the September quarter. Inflation, at 1.7 per cent, is well below the RBA’s target and unemployment is stuck around 5.2 per cent.ⁱⁱ

Despite the global slowdown, higher commodity prices were a major contributor to Australia’s healthy trade surplus in 2019.ⁱⁱⁱ

Australian Key Indices as at 31 Dec 2019		Share Markets (% change) Jan – Dec 2019
GDP annual growth rate*	1.7%	Australia ASX 200	18.4%
RBA cash rate	0.75%	US S&P 500	28.6%
Inflation	1.7%	Euro Stoxx 50	24.5%
Unemployment	5.2%	Shanghai Composite	22.3%
Consumer confidence index	95.1	Japan Nikkei 225	17.8%

* Year to September 30,2019 Sources: RBA, Westpac Melbourne Institute, Trading Economics

Commodities prices mixed

Iron ore prices rose 28.7 per cent in 2019 following a mine disaster in Brazil which reduced global supply. Other major Australian exports to receive a boost were gold, up 18.5 per cent, and beef, up 32 per cent.^iv

At the other end of the scale, thermal coal prices fell 34 per cent and liquefied natural gas (LNG) was down 44 per cent.^v

Middle East tensions and tighter supply led to a surge in crude oil prices, with Brent crude up almost 21 per cent.^vi As Australia is a net importer of oil, a jump in oil prices coupled with a fall in the Aussie dollar filtered through to higher petrol prices for motorists.

Interest rates at new lows

In an effort to stimulate the economy, the Reserve Bank cut the cash rate three times in 2019 to an historic low of 0.75 per cent. The US Federal Reserve also cut rates to a target range of 1.50-1.75 per cent. This was the main reason the Australian dollar lifted from its decade low of US67c in October to finish the year where it started, around US70c.^vii

Rate cuts flowed through to yields on Australian 10-year government bonds which fell to just 1.37 per cent.^viii However, falling bond yields result in higher bond prices and this lifted total returns from government bonds by around 8 per cent.^ix

Retirees and others who rely on income from bank term deposits had another difficult year, with interest rates generally below 2 per cent. After inflation, the real return was close to zero.^x It’s little wonder then that many looked elsewhere for a better return on their money.

Bumper year for shares

The hunt for yield was one reason Australian shares jumped 18.4 per cent in 2019, the best performance in a decade.^xi The market climbed a wall of worries to hit a record high in November on optimism about a US-China trade deal, then eased back on concerns about slowing economic growth.

Despite low interest rates and personal tax cuts, consumers are reluctant to spend. The Westpac/Melbourne Institute survey of consumer sentiment fell to 95.1 in December – anything below 100 denotes pessimism.^xii

Property prices recovering

Australian residential property prices rebounded strongly in the second half of 2019, driven by lower mortgage interest rates, a relaxation of bank lending practices and renewed certainty around the taxation of investment property following the May federal election.

According to CoreLogic, property prices rose 2.3 per cent on average, led by Melbourne and Sydney, both up 5.3 per cent. Also up were Hobart (3.9 per cent), Canberra (3.1 per cent) and Brisbane (0.3 per cent). The only capitals to fall in value were Darwin (-9.7 per cent), Perth (-6.8 per cent) and Adelaide (-0.2 per cent).

When rental income is included, the total return from residential property was 6.3 per cent.^xiii

Looking ahead

Property prices are expected to recover further this year but with shares looking fully valued and bond yields near rock bottom, returns could be more modest.

The Australian government is under pressure to do more to stimulate the economy in the short term to head off further rate cuts by the Reserve Bank. More fiscal stimulus could inject fresh life into the local economy and financial markets.

Overseas, the US-China trade war is far from resolved and could remain up in the air until after the US Presidential election in November. There is also uncertainty over the Brexit deal and its impact on trade across Europe.

The one thing we do know is that a diversified investment portfolio is the best way to navigate unpredictable markets.

If you would like to speak to us about your overall investment strategy, give us a call.

i Econonomic Insights: Sharemarket winners and losers, CommSec Economics, 2 January 2019

ii Trading Economics, viewed 1 Jan 2020, https://tradingeconomics.com/indicators

iii https://dfat.gov.au/trade/resources/trade-statistics/Pages/australias-trade-balance.aspx

iv Trading economics, as at 31 Dec 2019, viewed 1 Jan 2020, https://tradingeconomics.com/commodities

v Econonomic Insights: Sharemarket winners and losers, CommSec Economics, 2 January 2019

vi Trading economics, as at 31 Dec 2019, viewed 1 Jan 2020, https://tradingeconomics.com/commodities

vii Trading economics, as at 31 Dec 2019, viewed 1 Jan 2020, https://tradingeconomics.com/currencies

viii RBA, https://www.rba.gov.au/statistics/tables/#interest-rates

ix Economic Insights: Year in Review; Year in Preview, CommSec 2 January 2020.

x Canstar, https://www.canstar.com.au/term-deposits/highest-term-deposit-rates/

xi Trading economics, viewed 1 January 2020 https://tradingeconomics.com/stocks

xii https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/economics-research/er20191211BullConsumerSentiment.pdf

xiii https://www.corelogic.com.au/news/corelogic-december-2019-home-value-index-strong-finish-housing-values-2019-corelogic-national