Research Insights – Market Commentary September 2020
Growth assets declined in September. Investors adopted a more cautious stance.Posted: October 8, 2020
Growth assets declined in September. Investors adopted a more cautious stance due to a number of factors such as: The acceleration of COVID-19 cases globally, particularly the rise in the northern hemisphere; the lack of further stimulus or bond buying programs announced by central banks; and uncertainty around the US Presidential election on 3rd November.
Australia’s unemployment rate surprisingly fell to 6.8% from 7.5% in August. Without the Government’s JobKeeper program the unemployment rate would likely exceed 10% however with COVID-19 being contained and Victorian infection numbers falling hopefully “normality” can be resumed by November. We expect the biggest impacts to the economy will be from overseas tourists and international students , and on industries such as agriculture and viticulture that rely on the “backpacking” workforce.
The Australian equity market erased the gains of July and August and fell 3.6% in September with the Financial, Information Technology and Energy sectors amongst the worst performing sectors. During the month Westpac Banking Corporation agreed to pay the largest fine in Australian corporate history – a $1.3 billion civil penalty for 23 million breaches of anti-money laundering laws.
Technology stocks globally saw a rare period of profit taking with the technology heavy NASDAQ Composite Index in the US falling 5.2% in September. This was replicated in Australian technology stocks with the local Information Technology sector falling by 6.4% for the month. International equities fell by 2.9% on a currency-hedged basis while a lower AUD (down 3% against the USD to close at US$0.717) helped lessen the losses for unhedged investors to -0.3% for the month.
The RBA left interest rate and other policy settings on hold at their October 6th meeting however a rate cut to bring the cash rate down from 0.25% to 0.10% is highly anticipated at their November policy meeting. The Australian yield curve fell in August with the 10-year government bond yield falling by 20bps to 0.78% whilst the 2-year government bond yield fell by 9bps to 0.16% in anticipation of an imminent RBA interest rate cut. In the US the 10-year government bond yield fell 3bps to close at 0.68% and the 2-year government bond yield was flat at 0.13%.
Quick Budget Snapshot
- Infrastructure investment of an additional $7.5bn across all states/territories
- A range of targeted investment measures to support industry and businesses and help them to recover from the last 6 months
- For business with turnover up to $5bn there is an immediate deduction on capital assets acquired and they will also be able to offset losses against previous taxed profits
- Personal income tax reductions potentially back dated to take effect 1 July 2020
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