Weekly Market Update - 9th March 2020
Investors undecided on the path forward
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.
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 actually 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.
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 began 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 a comprehensive free trade agreement to be at the core of any agreement.
Weekly market updates are written by Chris Lioutas. Chris is on the board of Peer Wealth X Futuro Investment Committee. View LinkedIn
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