RBA calls on government to do more

Blog
Friday 21st August 2020

RBA calls on government to do more

Blog
Friday 21st August 2020
Written by Chris Lioutas

Markets:

  • Local and global equity markets largely tread water this week.
  • Apple became the first US company to boast a market value of US$2 trillion, just two years after it became the first to reach US$1 trillion. The stock is up 60% this year.
  • In local stock news, National Australia Bank got a pass from investors as it reported a 7% drop cash profits in the 3rd quarter. Credit impairment charges now total $1.7 billion for the bank’s financial year to date. ANZ Bank reported a 3rd quarter cash profit of almost $1.5 billion, benefiting from strong growth in home loans and deposits in the quarter. The bank will pay out a much smaller dividend of 25 cents, representing just 46% of net profit from the 1st half (the bank regulator had previously told the banks nothing over 50%).
  • Westpac reported $1.12 billion in cash earnings for the quarter, significantly higher than the previous quarter’s result, due to lower impairment charges. Excluding one-off items, cash earnings rose 19%. However, the bank will not pay a 1st half dividend, preferring to maintain a strong balance sheet in light of continued uncertainty (ie. the government continuing to lean on them to shoulder societal pain). Pleasingly, the bank saw a drop in mortgage repayment deferrals to 78,000, down from 135,000 at the peak.
  • CSL more than beat expectations for a weak result reporting a $2.9 billion profit for the full year whilst also increasing their dividend.
  • Qantas reported an underlying profit before tax of $124 million for the financial year, a 90% decline compared to the year before. The company also announced another 6,000 job cuts whilst indicating that it doesn’t expect to operate international flights before July 2021. Qantas CEO made it very clear that state borders should be re-opened, indicating that recent restrictions aren’t based on health advice but are instead being politicised.
  • JB Hi-Fi has benefited from government stimulus which has put more income into the hands of those at home, posting a 21% profit increase for the financial year. Sales rose more than 11% across the group.
  • BHP reported a full year net profit of $11 billion whilst also announcing a final dividend of US$0.55 per share fully franked, which is lower than the 2019 final dividend of US$0.78 cents per share.
  • Treasury Wine Estates shares fell sharply after the Chinese government said it will investigate Australian wine exports on anti-dumping grounds. The claims relative to Treasury Wine Estates are baseless, but that doesn’t really matter to the Chinese given the bigger political picture. The share price fall comes off the back of recent share price rises as the company reported a better than expected full year result.

Economics:

  • The RBA governor expects economic growth to contract 7% when the June quarter figures are released.
  • The RBA governor also rubbished calls for direct finance of government spending (ie. modern monetary theory or MMT) and called on state and federal governments to do more. The governments have access to capital markets and can now borrow at extremely low rates of interest. The governor maintained that the only way out of a recession was to grow the economy which would mean significant industrial relations and tax reform, changes to the financing of research and development, less regulation, and greater skills training.
  • US retail sales increased less than expected last month and could slow further in the period ahead considering increased restrictions in some states, a reduction in unemployment and other government benefits.
  • US housing stats rose by more than 22%, the most since October 2016, and well above the expected annualised rate. Building permits were up almost 19%, the most since January 1990.
  • China’s retail sales slipped in July, against expectations of a rise, as consumer confidence and sentiment continue to wane. The Chinese factory sector’s recovery struggled to pick up pace whilst industrial production growth is slowing.
  • The Chinese central bank injected around US$100 billion of liquidity into its money market through a 12-month lending facility but then decided not to cut interest rates any further, thus confusing investors as to the direction of central bank policy ahead.

Politics:

  • PM Scott Morrison announced the securing of vaccine supply from global healthcare giant AstraZeneca, in collaboration with Oxford University. The problem was his slip of the tongue where he seemed to indicate mandatory/forced vaccination. He later clarified those comments, but it is likely to be the case that no jab will mean no school, no entering of workplaces, and no travel.
  • US Congress have failed to agree to a new round of stimulus before Congress went into recess, in light of the Democratic convention. That means that due to absent President Trump’s stimulus measures via a range of executive orders over the last few weeks, 30 million Americans would have reverted to pre-virus government benefits which almost amount to nothing. The blame game within Congress continues as does the lack of basic math.
  • US and China have postponed talks on reviewing the implementation of their phase 1 trade deal most likely to avoid potentially embarrassing themselves given it looks increasingly likely that neither side is anywhere close to meeting the terms of the agreement. Obviously COVID hasn’t helped.
  • The Belarussian President has told protestors they would have to kill him to get new elections. Russia has recognised him as the legitimate winner of last weekend’s elections, but EU foreign ministers have refused to acknowledge the election results. Also in the region were reports that the leader of the main opposition party in Russia had been taken to hospital gravely ill with suspected poisoning. 


Author 

Chris Lioutas, Director, Insight Investment Consultants

Chris holds the position of asset consultant for Maxim Advisors and is a current sitting member of Maxim's investment committee. 

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


Disclaimer: This material has been prepared without considering any potential investor's or clients objectives, financial situation or needs. This article is of a factual 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.