Friday made for fascinating watching as ANZ +6%, CBA +3%, NAB +7% and WBC +7% drove the ASX +1.5% higher for the day posting a weekly gain of +1.7%
Hardly surprising when you consider 16% of the ASX200 Index is made up entirely of the four banks above.
What was surprising was the Government’s decision to dump the responsible lending laws that were imposed by Labor in 2009 following the American subprime loan crisis.
The volte-face announced by Treasurer Frydenberg on Friday will remove ASIC from enforcing the responsible lending rules for banks and other mainstream authorised deposit-taking institutions meaning banks and other lenders will be subject to less onerous and prescriptive lending standards.
A relaxation in these credit lending rules is set to boost the flow of credit from lenders and means applicants will qualify for loans more easily, a positive for both lender and borrower.
As a result of falling interest rates and the Hayne Royal Commission, banks have become overly conservative when writing and assessing loans. This deregulation aims to undo some of this red tape and boost economic recovery following the covid-19 contraction.
The Federal Budget will be handed down in Parliament next week with the Treasurer stating the Budget will remain in deficit for the “foreseeable future.”
The ‘foreseeable future’ is an ambiguous term but economic and financial modelling indicates this might be a decade or even longer.
The Government’s current focus is the unemployment rate which it says needs to be “comfortably below” 6% before it would consider stabilising debt and returning to surplus.
With the unemployment rate currently at 6.8% and forecast to rise in the coming months because of the lockdown in Melbourne the deficit is more likely to widen in the short term.
Current budget forecasts expect gross debt to exceed 45% of GDP which equates to more than $1trillion with the deficit for this FY21 expected to be above $200b.
This is following the announcement last week that the FY20 budget deficit came in at $85.3b as Government spending soared by $57b over what was expected driven by JobKeeper stimulus payments and increased welfare payments.
For context, the Treasurer had forecast a budget surplus last year of $4.1b so this is a $90b turnaround.
The AUD fell -3.6% last week to trade just above 70c – its lowest level since late July.
A stronger USD in recent weeks has been part of the reason but the main driver for last week’s weakness was RBA deputy governor Guy Debelle flagging the central bank was assessing currency market intervention and negative rates to meet its inflationary and employment targets.
This was quite surprising given these comments came only one week after RBA governor Phillip Lowe said negative rates were “extraordinarily unlikely.”
Calls for a rate cut when the RBA meet next Tuesday (ahead of the Budget that evening) are gaining traction after Westpac’s chief economist updated the bank’s forecasts. Bond markets are now pricing in a 40% chance the cash rate target, three-year bond yield target, and the interest rate on the Term Funding Facility (TFF) will be reduced to 0.1% next week.
Nufarm (NUF) shares fell -3.5% for the week after posting FY20 results that show signs group momentum is starting to turn.
NUF posted a net loss of $456m amid weaker earnings from its North American business and a large writedown against its underperforming European unit which suffered as covid-19 weakened demand and led to higher manufacturing costs.
Stripping out one-off items, NUFs underlying EBITDA fell to $236m with a decline in European Seed and Technologies the major driver. Pleasingly, FY20 revenues rose +6.5% to $2.85b and NUF stated that all business ex Europe were showing positive momentum and good revenue growth in second half of 2020.
NUF is very much a 2nd half driven business with a significant portion of earnings derived in the July half given the planting seasons in Europe, America and Australia so we remain hopeful crop conditions leading into Summer locally are favourable.
Concerns over rising daily case numbers in Europe and the potential for a widespread second wave saw European equity markets end the week lower.
As the northern hemisphere moves towards Winter UK PM Boris Johnson told a Parliamentary hearing last Tuesday gatherings would be limited to six people or less and work from home orders reinstated along with restrictions on trading hours for restaurants and cafes.
Such measures could be necessary for up to six months with predictions of up to 50,000 new cases per day by October if the current rate does not slow.
With more than 41,000 deaths and the highest covid-19 death toll in Europe a deadly second wave will likely see much of the UK economy shutdown, similar to what many in Australia experienced throughout the Winter months.
Federal Reserve Chair Jerome Powell said the US economy needs further support in a speech to the House Financial Services Committee.
Employment and overall economic activity remain well below pre-pandemic levels and the path ahead remains uncertain, particularly given the upcoming US Presidential election. Whilst the US Treasury Secretary said he and the White House continue to seek an agreement with both parties in Congress on another fiscal relief package the likelihood of this occurring before the election continues to fall.
US tech once again seesawed with the NASDAQ adding +1% for the week on the back of Friday’s +2% climb. Despite the gains the index is still down -7% month to date with a lack of conviction and profit taking the cause.
The much-hyped Tesla (TSLA) ‘Battery Day’ took place last week and ultimately failed to excite investors. Shares were marked down -10% with investors disappointed by its strategy to bring its own battery cell to mass production.
Coupled with the news the TSLA network, app and website were all experiencing network outage issues the ‘Battery Day’ underwhelmed.
Monday 28th September – Friday 2nd October
Index | Change | % | |
All Ordinaries | 6140 | +82 | +1.4% |
S&P / ASX 200 | 5965 | +100 | +1.7% |
Property Trust Index | 1307 | +7 | +0.5% |
Utilities Index | 7251 | +246 | +3.5% |
Financials Index | 4614 | +132 | +2.9% |
Materials Index | 13919 | -321 | -2.3% |
Index | Change | % | |
U.S. S&P 500 | 3298 | -21 | -0.6% |
London’s FTSE | 5843 | -164 | -2.7% |
Japan’s Nikkei | 23205 | -155 | -0.7% |
Hang Seng | 23235 | -1220 | -5.0% |
China’s Shanghai | 3280 | -58 | -1.7% |
Monday 28th September – Friday 2nd October
Mark Johnson – Chairman of Investment Committee | (03) 8825 4738 |
Guy Silbert – Investment Manager | (03) 8825 4750 |
Jordan Lisle – Dealer & Research Assistant | (03) 8825 4749 |
Mark Johnson | T: (03) 8825 4738 | Cameron Morcher | T: (03) 8825 4737 |
Livio Caiolfa | T: (03) 8825 4748 | Michelle Bromley | T: (03) 8825 4751 |
Marcus Ainger | T: (02) 9134 6292 | Nicole Lewis | T: (03) 8825 4734 |
Dylan Cresswell | T: (03) 8825 4707 | Garry Frizzo | T: (07) 4019 2410 |
Michael Cooper | T: (07) 3010 8597 | Nicholas Miller | T: (03) 8825 4722 |
Jarrod Rodda | T: (03) 8825 4729 |
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