Mar 09

Economic Update

Global Economy
The countries that participate in the OECD include the USA, Australia, France, Germany and the UK amongst other developed economies. There are economic indicators for these countries that are designed to show us things such as the likely path of economic growth.

The Organisation for Economic Co-operation and Development (OECD) Composite Leading Indicator is one such measure.

Pleasingly, this indicator has returned to the high levels seen before the COVID-19 pandemic. It rose to 99.4 in December 2020, up from 98.9 in September.

Other leading indicators are also pointing towards continued economic recovery in the December quarter globally.

Growth expectations were further supported by:

  • A Democrat win in the US election with President Joe Biden looking likely to embark on more government spending in addition to a December 2020 bill that will provide further support for households and local and state governments.
  • Vaccine approvals and the rollout across much of the world. While it is still early days, further progress on distribution should curb the worst of the COVID-19 pandemic and see an earlier return to a pre-COVID-19 world.
  • A final deal between the UK and EU ended concerns of a disruptive UK exit from the EU that would have further weakened the region economically.
  • In the short term, rising COVID-19 cases are continuing to drag on both the health and economic situation across the world.
  • The USA and Europe are among the worst-hit with a more infectious strain in the UK making the situation worse.
  • Investors have been willing to look past this in anticipation that vaccinations will put the worst of the pandemic and its impacts behind us in 2021.

Australia
The bounce back in economic activity following the end of Victoria’s lockdown continued during the December quarter.

Small clusters of COVID-19 outbreaks in Sydney and Brisbane disrupted inter-state travel with borders closed once again in December and throughout the Christmas holiday. Measures taken to counteract these have not had a material effect on the economy to-date. However, momentum remains positive into 2021.

We saw continued strength in jobs growth with the unemployment rate falling to 6.8% in November. Job vacancies on online sites such as Seek are now exceeding pre-COVID-19 levels suggesting that jobs recovery will continue. Risks affecting the growth outlook for the economy include the ending of the JobKeeper and JobSeeker initiatives in March 2021 and tensions between China and Australian exporters.

Shares
The Australian share market performed strongly with a 13.6% rise in the benchmark for the S&P/ASX 200 Price Index. At a sector level, this benchmark was driven higher by the financials sector (banks and insurers) (up 26.2%) and the energy sector (up 21.8%).

The performance of deferred loans was better than expected for the major banks which supported the financials sector. Also, the anticipation of the COVID-19 vaccine rollout and the Australian Prudential Regulation Authority (APRA) approving the resumption of dividend payments for banks and insurers provided further tailwind for the sector.

Oil prices surged due to the anticipation of economic recovery which supported the strong rise in energy stocks. A similar situation occurred overseas where sectors that had performed poorly due to the COVID-19 pandemic saw surging investor support in anticipation of stronger global growth.

Fixed income and currencies
Bond prices fell, driving bond yields higher both here and overseas over the December quarter. Anticipation of a global recovery saw investors sell down bond holdings and seek riskier assets. Riskier, low grade corporate bonds saw strong performance as a result.

A similar story played out in currency markets. Countries with exposure to global growth through their exports such as Australia and Japan rose further while the US Dollar continued to falter as investors bet against it, in favour of ‘pro growth’ currencies like the Australian dollar and Japanese Yen.

 

 

Source: IOOF Research

Important Information: This report has been prepared by the IOOF Research team for Lonsdale Financial Group ABN 76 006 637 225 AFSL 246934 (“Lonsdale Financial Group”). Lonsdale Financial Group is a company within the IOOF group of companies consisting of IOOF Holdings Limited ABN 49 100 103 722 and its related bodies corporate. This report is current as at the date of issue but may be superseded by future publications. The information in the report may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of Lonsdale Financial Group. This report may be used on the express condition that you have obtained a copy of the Lonsdale Financial Group Financial Services Guide (FSG) from the website www.lonsdale.com.au. Lonsdale Financial Group and/or its associated entities, directors and/or its employees may have a material interest in, and may earn brokerage from, any securities or other financial products referred to in this report or may provide services to the companies referred to in this report. This report is not available for distribution outside Australia and may not be passed on to any third person without the prior written consent of Lonsdale Financial Group. Lonsdale Financial Group and associated persons (including persons from whom information in this report is sourced) may do business or seek to do business with companies covered in its research reports. As a result, investors should be aware that the firms or other such persons may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making an investment decision. This report has been prepared in good faith and with reasonable care. Neither Lonsdale Financial Group nor any other person makes any representation or warranty, express or implied, as to the accuracy, reliability, reasonableness or completeness of the contents of this document (including any projections, forecasts, estimates, prospects and returns and any omissions from this document). To the maximum extent permitted by law Lonsdale Financial Group, its related bodies corporate and their respective officers, employees, representatives and associates disclaim and exclude all liability for any loss or damage (whether foreseeable or not foreseeable) suffered or incurred by any person acting on any information (including any projections, forecasts, estimates, prospects and returns) provided in, or omitted from this report. General Advice Disclaimer: The information in this report is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this report, you should assess your own circumstances or seek advice from a financial adviser. Where applicable, you should obtain and consider a copy of the Product Disclosure Statement, prospectus or other disclosure material relevant to the financial product before you acquire a financial product. It is important to note that investments may go up and down and past performance is not an indicator of future performance. For information regarding any potential conflicts of interest and analyst holdings; IOOF Research Team’s coverage criteria, methodology and spread of ratings; and summary information about the qualifications and experience of the IOOF Research Team please visit https://www.ioof.com.au/adviser/investment_funds/ioof_advice_research_process.

About The Author

Leave a reply

Your email address will not be published. Required fields are marked *