January 21, 2021

Quarterly Economic Update: October – December 2020

COVID-19
Finally some good news on the COVID-19 front: several vaccines, all developed in record time, were being rolled out in a number of countries. While a huge step forward in bringing the pandemic under control, it comes at a time when, globally, more people are being infected with the coronavirus, and more people are dying from it than at any previous point in the pandemic. There is a long way to go before victory can be declared.

The local view

As was widely anticipated, the RBA cut the cash rate target by 0.15% to 0.1% in November. While welcomed by borrowers the cut put additional pressure on net savers by making it even harder to find low risk income yielding investments. Some are turning to peer-to-peer lending platforms, or even high yielding shares, which may partly explain the strong recent performance of the ASX.
The official unemployment rate in November was 6.8%, the same as in August. However, using a different methodology, Roy Morgan calculated unemployment to be 11.9% in November, with a further 9.1% under-employed. While hardly cause for celebration, this was the first time since the pandemic began that both figures showed a month-on-month drop.

Property also received a boost. CoreLogic reported that dwellings rose in value by 0.4% in October and 0.8% in November. From March to October property fell just 1.7%, revealing the market to be more resilient than many anticipated. And according to the Australian Bureau of Statistics, Santa stopped at 8.9 million households in Australia this Christmas.

The world stage

The US election delivered a change of president, with markets responding positively as the result became clear. As the year came to a close, a sigh of relief was heard from millions as the US Congress approved a coronavirus relief package worth $US892 billion ($1.18 trillion). The package includes $US600 payments to most Americans. And finally, after years of negotiation and
with just days to spare, the UK and EU managed to agree on a BREXIT trade deal. While it will keep the goods flowing between the UK and Europe, the agreement doesn’t cover the huge services
sector. More talks, anyone?

The markets

It was a good quarter on the markets with the main global and US indices zooming past pre-COVID-19 levels. The MSCI AllCountry World Equity Index rose 13.4%. The Australian market followed suit, with the S&P/ASX200 rising 13.3%. However, the Aussie market has yet to return to its February high. In the US the S&P500 rose 11% and tech stocks continued to attract buyers with the NASDAQ up 15.5%. The A$ gained strength rising 8.2% against the greenback. While partly due to a weakening of the US$, the A$ was also up 2% against the British Pound, 3.4% against
the Euro and 5.6% against the Yen.

The outlook

Beyond direct health effects, much of COVID-19’s economic impacts have been due to fear. It will take many months, but as vaccines are rolled out and provided they bring the pandemic under control much of that fear will dissipate. As it does economic activity should pick up strongly. Less likely to see any positive developments in the immediate future is the tense relationship between Australia and China. Australian coal miners, winemakers and barley growers will continue to bear the brunt of the dispute. Fortunately, China is still highly dependent on Australian iron ore, the price of which has soared by 78% since the start of the year.

Chris Connolly
Connolly Wealth Management
Level 1, 441 South Road
Bentleigh  VIC  3204

(P) 03 9591 8000
(F) 03 9530 8375
(E) chris@connollywealth.com.au
(W) www.connollywealth.com.au

Disclosure: Christopher Connolly (280099) and Connolly Wealth Management Pty Ltd (333350) are Authorised Representatives of Wealthsure Financial Services Pty Ltd AFSL 326450.

 

Sources:
https://www.abs.gov.au/
Peer to peep lending:
https://moneysmart.gov.au/managedfunds-and-etfs/peer-to-peer-lending
Unemployment down sharply to 11.9% in
November as lockdown finally ends in
Victoria – lowest since early March:
http://roymorgan.com.au/findings/8592-
australian-unemployment-estimatesnovember-2020-202012020504
Why didn’t the Australian housing market
crash?:
https://www.corelogic.com.au/news/whydidnt-australian-housing-market-crash
CoreLogic November home value indices:
Dwelling values rise across every capital
city and rest-of-state region:
https://www.corelogic.com.au/news/corelo
gic-november-home-value-indicesCash Rate:
https://www.rba.gov.au/statistics/cashrate/
Currency rates: www.xe.com
MSCI All-Country World Equity Index:
https://au.investing.com/indices/msciworld-stock-chart
ASX figures: www2.commsec.com.au
S&P500 and NASDAQ:
https://finance.yahoo.com/
In this article we have not taken into account any
particular person’s objectives, financial situation or
needs. You should, before acting on this information,
consider the appropriateness of this information
having regard to your personal objectives, financial
situation or needs. We recommend you obtain financial
advice specific to your situation before making any
financial investment or insurance decision.

 


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