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What is New

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Oliver's Insights - Plunging bond yields & weak share markets amidst talk of recession – what does it mean for investors?

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note looks at the volatility seen in share markets and bond yields over the last few weeks. The key points are as follows:

  • Worries about the US trade wars and global growth are continuing to cause volatility in investment markets.
  • While the risks have increased, we remain of the view that recession is unlikely.
  • Share markets may still fall further on trade war fears and this may even be necessary to remind both sides of the need for a deal.
  • However, we regard the fall in share markets as another correction and not the start of a major bear market.

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Oliver's Insights - The Fed cuts rates

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note looks at the Fed cutting interest rates for the first time since December 2008. The key points are as follows:

  • The US Federal Reserve has cut the Fed Funds rate by 0.25% citing uncertainties around the outlook for growth and inflation. The key uncertainties relate to trade and weaker global growth along with ongoing low inflation.
  • We expect another one or two 0.25% cuts with the next in September but with US recession unlikely this rate cutting cycle is likely to be limited. Fed and global monetary easing generally should help boost global growth into next year.
  • Beyond potential short-term volatility, falling US rates are positive for shares on a 6 to 12 month view.
  • The main risks are the threats posed by US trade wars and tensions with Iran.
  • The RBA was already on track to cut rates to 0.5% in our view and the Fed’s move does nothing to change that.

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Oliver's Insights - 2018-19 saw a rough ride for investors but it turned out okay

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note reviews the last financial year and takes a look at the investment outlook for 2019-20. The key points are as follows:

  • 2018-19 saw solid returns for diversified investors, helped by a sharp rise in share markets in the last six months & solid returns from most assets, except cash.
  • Key lessons for investors from the last financial year were to: turn down the noise around investment markets, maintain a well-diversified portfolio; and cash continues to provide low returns.
  • A pick-up in global growth, renewed monetary easing, an absence of significant economic excess globally and okay equity valuations should support returns over the year ahead. But they are likely to be constrained with bouts of volatility as the US trade conflict impacts and risk remains around the Australian property market.
 

 

 

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Oliver's Insights - Australian growth will be constrained - but here's nine reasons why recession is unlikely

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note attempts to put a bit of balance back into the debate about the outlook for the Australian economy which seems to have become quite gloomy lately. The key points are as follows:

  • Australian growth is likely to be weak over the next year or so and this will prompt further monetary easing and fiscal stimulus.
  • However, several positives suggest recession is unlikely: the current account deficit has collapsed; the $A helps stabilise the economy; the drag from falling mining investment is over; there is scope for extra fiscal stimulus; infrastructure spending is booming; there has been no sign of panic property selling; economic policy remains sensible; population growth remains strong; and the RBA can still do more.

 

Oliver's Insights - Australian growth will be constrained - but here's nine reasons why recession is Oliver's Insights - Australian growth will be constrained - but here's nine reasons why recession is (265 KB)

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Oliver's Insights - RBA cuts rates to a new record low – why? will it work? how low will rates go? and what does it mean for investors?

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note looks at the Reserve Bank of Australia’s decision to cut the official cash rate by 0.25% to a new record low of 1.25%. The key points are as follows:

 

  • The RBA’s latest rate cut is aimed at heading off a further slowing in growth which would threaten higher unemployment and lower for longer inflation.
  • Cutting the inflation target would be a big mistake
  • More rate cuts are likely to be needed ultimately taking the cash rate to a low of 0.5% next year. Ideally this will be combined with more fiscal stimulus.
  • For investors it means low interest rates for even longer.

 

 

 

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Oliver's Insights - The trade war is back – what went wrong, what it means for share markets and Australia

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note looks at the latest round of tariff increases announced by the US and China. The key points are as follows:

  • The trade war between the US and China has returned after talks to resolve their trade differences broke down.
  • Our base case remains that a deal will be reached to resolve the issues, but the risks to global growth are now higher (given the escalation in tariffs from the US) and share markets may need to fall further in the short term to remind both sides of the need for a deal.

 

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Oliver's Insights - The 2019 Australian Federal election and investors

Shane Oliver, Head of Investment Strategy and Chief Economist.

 

With the Australian Federal election now called for May 18, the attached note takes a look at the impact of Federal elections on investment markets and the critical policy differences this time around of relevance to investors. The key points are as follows:

 

  • Australian elections tend to result in a period of uncertainty which have seen weak gains on average for shares followed by a bounce once it's out of the way.
  • With Labor promising higher taxes, larger government and more intervention in the economy the May election presents a starker choice than has been the case since the 1970s & so suggests greater uncertainty for investors than usual.
  • Labor's higher tax and regulation agenda may be a negative for Australian assets, but this could be partly offset in the short term by more targeted fiscal stimulus.
  • To return to decent wage gains requires a productivity enhancing reform agenda and much lower unemployment. This election is unlikely to deliver much on the former.

 

Oliver's Insights - The 2019 Australian Federal election and investors Oliver's Insights - The 2019 Australian Federal election and investors (283 KB)

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Oliver's Insights - The 2019-20 Australian Budget – the long-awaited surplus and the promise of more tax cuts ahead of the election

Shane Oliver, Head of Investment Strategy and Chief Economist.

 

The attached note takes a look at the 2019-20 Australian Budget. The key points are as follows:

 

  • The 2019-20 Budget "delivers" the long-awaited surplus and increased fiscal stimulus mainly via tax cuts/offsets.
  • The main risk is that the revenue boost is not sustained & the budget continues to have relatively optimistic assumptions regarding wages growth.
  • The impact on the RBA and shares is likely minimal as the fiscal stimulus in the Budget is modest.

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The Australian housing market starting to cool (in parts)


Shane Oliver, Head of Investment Strategy and Chief Economist.

Key points are as follows:
 

Australian housing remains overvalued and this has gone hand in hand with 

high household debt. Against this, supply has been constrained and there has 
not been a deterioration in lending standards.

The hot Sydney and Melbourne property markets are showing signs of cooling
  as APRA measures bite. Expect price falls of around 5-10% around 2017.

Property investors need to be careful at this point in the property cycle as 
medium term returns are likely to be constrained.



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