US stimulus and RBA minutes to keep local investors interested


US politics

Speculation about US politics, as well as negotiations within US Congress regarding a US fiscal stimulus bill, will be the major drivers in the global financial markets. Polling continues to
suggest a Joe Biden victory in the US general election, with the balance of probabilities seemingly indicating a so-called ‘blue wave’, which would see Democrats seize control of both houses of congress, with the markets also positioning for a subsequently bigger spending government after the election. The markets also appears to be less concerned about the possibility of a contested election result. Although it remains inverted, the US VIX Futures curve has flattened considerably in recent weeks.

Australian markets
SPI Futures are suggesting that the ASX200 ought to kick-off the week with a 0.63 per cent
rally, following a neutral lead from Wall Street on Friday. It backs up what was a positive
week for Australian equities, with the ASX200 briefly challenging post-virus-crisis highs
during the week and closing trade 1.22 per cent higher. The highlight for the local trading
week this may prove to be the RBA’s minutes from its last meeting. The minutes will be read for how close the RBA came to cutting rates last month, as market participants price-in a
likely easing of monetary in November, along with the increased likelihood of a more
conventional quantitative easing program from the central bank in the near future.

Virus and lockdowns
Second and third waves of the coronavirus in several major economies is weighing on
market sentiment. A spike in infections in the UK and parts of Europe cast doubt over the
global economies recovery last week, the UK and France two notable countries to reimpose
fresh lockdown measures. The need for a vaccine has become more pronounced for the
markets, as it becomes clearer that the global economy faces a slow journey to normalcy
without one. Hopes were bolstered at the end of last week that a vaccine may come sooner
than expected, after US pharmaceutical company Pfizer flagged it could release its vaccine
by as soon as November.

US earnings season
The reporting period for US corporates has so far been a positive one. According to financial
data company FactSet, of the 49 companies that have reported profits, 83 per cent have
exceeded expectations, with the market now tipping a contraction in earnings this quarter
of -18.5 per cent. Better than expected results from financial sector firms were largely
responsible for the outperformance, with some of America’s biggest banks surprising
investors by reporting lower provisions, and continued strong revenues in trading divisions.
Attention will turn to US tech in the week ahead, with Netflix and Tesla reporting
their Q3 results.

Economic data
A raft of economic data will deliver a health check on the global economy’s recovery this
week. China will publish its GDP data for the quarter, with economists tipping the figure will
reaffirm the view that the Chinese economic rebound is on strong footing. GDP is projected
to have expanded by 5.5 per cent on a quarter-over-year basis, up from 3.2 per cent last
quarter. Global PMI surveys will also be closely watched to get a live pulse on global
business activity. Estimates are suggesting a plateauing of both manufacturing and services
activity across the world economy, with special concern directed to the services surveys this
week, as fresh lockdowns roll-out across several major economies.

Listen to the Short Squeeze, our weekly markets podcast produced in conjunction with IG here. Episodes last for about 10 minutes and are also available through Spotify and Google Podcasts.

This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG. Information is of a general nature only.



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RBA warns banks over culture as staff contact customers over loan deferrals


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It also warned the Australian Prudential Regulation Authority would soon restart work on ensuring executive pay was tied to targets that encourage good practice and culture.

The RBA’s comments came within a larger report into the impact of the coronravirus pandemic on the financial system, with significant risks and volatility buffered by the banks’ high capital levels.

The Commonwealth Bank’s senior economist Kristina Clifton said the report was a “sobering read”.

“The next few months will be telling in how households manage the resumption of mortgage repayments. The risk is that some may need to sell their property to repay their debt. This may have flow-on effects to dwelling prices,” she said.

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More than $229 billion in loans had been deferred as of August and Australian Banking Association chief executive Anna Bligh said the banks had now embarked on the “largest ever customer reach out process” contacting more than 900,000 customers.

“Culture is the result of a multitude of decisions, practices and attitudes of every staff member, every day in every bank,” she said. Australia’s banks understand that these are now more important than ever and will define the industry for many years to come.

“It’s a pivotal time for Australia’s banks. The economic impacts of COVID-19 will be felt for a prolonged period and thousands of customers will be doing it tough.”

Treasury proposed axing the responsible lending laws last month in a move that would reduce the checks and balances in approving lines of credit. Treasurer Josh Frydenberg described the law change as shifting the approach from “lender beware” to “borrower responsibility”.

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Consumer Action Law Centre chief executive Gerard Brody said the proposed changes would likely lead to a break down in banking culture and predatory behaviour, including cold calling and pressure sales tactics.

“It does worry me that on one hand the RBA is perhaps saying that culture and risk appetite needs to be kept in check, on the other hand the government seems to be giving the green light for more irresponsible lending,” Mr Brody said.

Once the JobKeeper and JobSeeker payments come to an end, Mr Brody said many Australians would be exposed to financial difficulty, creating incentives to take on more loans.

“Most Australians talking to their bank expect the bank is acting in their interest and will offer products that are suitable for them.

The Australian Bureau of Statistics released figures on Friday that show $21.3 billion in home loans were approved in August, an increase of 12.6 per cent from the month prior adding to a 19.3 per cent increase over the course of the year.

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RBA leaves cash rate at 0.25% | The Canberra Times


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Australia’s official cash rate remains at 0.25 per cent after the Reserve Bank board decided to maintain current settings amid the coronavirus recession. Reserve Bank officials have kept the official cash rate at the record low of 0.25 per cent as the economy remains flattened by the coronavirus recession. The board at its regular meeting opted to maintain the cash rate target and the yield on three year government bonds of 25 basis points, as economists expected. The board has decided to boost the bank’s term funding facility, which will allow banks and other institutions more funding. They will be able to draw an equivalent of two per cent of their outstanding credit, at a fixed rate of 25 basis points for three years, until the end of June. RBA Governor Philip Lowe said the term funding decision would help keep interest rates low for borrowers and help financial institutions provide credit. He said financial institutions had drawn $52 billion from the term funding facility. The board decision will increase the total amount available to about $200 billion. Mr Lowe said economic recovery was underway in Australia although the path was likely to be bumpy. “Indeed, fiscal and monetary support will be required for some time given the outlook for the economy and the prospect of high unemployment,” he said. The RBA has not changed the cash rate since March, when it announced quantitative easing measures as the pandemic took hold in Australia. AAP

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RBA keeps rates on hold at 0.25 per cent



The Reserve Bank of Australia has kept rates on hold at 0.25 per cent as was widely expected.

AMP Capital’s Shane Oliver told Sky News “there were no real surprises” from the decision and “all of the action on the Reserve Bank’s front was back in March”.

“A rate cut in early March and another in the middle of March … that’s when they announced the start of quantitative easing, when the bank started buying government bonds,” Mr Oliver said.

“I think they have been successful, it has kept the banks afloat and enabled them to pass on rate cuts to their customers.

“All of those measures put in place are working.”



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Australia’s economy to shrink 10% in first half of 2020: RBA Governor



FILE PHOTO: Australia’s new Reserve Bank of Australia (RBA) Governor Philip Lowe speaks at a parliamentary economics committee meeting in Sydney, September 22, 2016. REUTERS/Jason Reed/File Photo

April 21, 2020

SYDNEY (Reuters) – Australia will suffer its biggest economic contraction since the 1930s in the first half of 2020 due to coronavirus-driven mobility restrictions, the central banker governor said on Tuesday.

Reserve Bank of Australia (RBA) Governor Philip Lowe said in a speech in Sydney the country’s national output would fall by around 10% in the first half of 2020, with most of this decline taking place in the June quarter.

Unemployment is likely to be around 10% by June as total hours worked are likely to decline by around 20%, he added. The jobless rate was at 5.2% in March.

“These are all very large numbers and ones that were inconceivable just a few months ago,” Lowe said in a speech in Sydney. “They speak to the immense challenge faced by our society to contain the virus.”

Earlier, figures from the Australian Bureau of Statistics showed jobs recorded by the tax office payrolls system fell 6% between March 14 and April 4, suggesting about 780,000 job losses.

The number of coronavirus infections in Australia is relatively small with the rate of growth slowing significantly in recent days.

However, the outbreak has spread rapidly from less than 100 cases in March to more than 6,600 now, prompting the government to shut non-essential businesses, ban overseas travel and large gatherings while enforcing social distancing rules.

Lowe said the economic recovery would be slow when these restrictions are eased.

“Whatever the timing of the recovery, when it does come, we should not be expecting that we will return quickly to business as usual,” Lowe said in a speech broadcast live on the RBA’s website.

“Rather, the twin health and economic emergencies that we are experiencing now will cast a shadow over our economy for some time to come.”

(Reporting by Swati Pandey; Editing by Kim Coghill and Sam Holmes)





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