Posted on 21/4/2020
The Australian Government has unveiled a suite of economic support in response to Covid-19, currently totalling $320 billion, or 16.4% of GDP. The first part of the package took the form of a one-off cash payment of $750 to 6.5m lower income households totalling $4.8bn and $2,000 – $25,000 cash payments to 690,000 small-to-medium sized businesses. The balance of the stimulus suite are the ‘JobSeeker’ and ‘JobKeeper’ payments. At a high level, the JobSeeker payments are an additional payment $550 to those already receiving income support payments. The JobKeeper payments are a subsidy to businesses, aimed at keeping more Australians employed, with those eligible receiving a payment of $1,500 per fortnight from their employer on behalf of the Government. Both payment programs are scheduled to run for six months.
The U.S. Federal Reserve also announced its own QE program, setting an ‘infinity’ limit on the amount it will repurchase, up from the previously stated USD$700bn. The Fed will target Treasury bonds (both short and long dated), corporate bonds and mortgage backed securities in order to maintain market liquidity and quell volatility. President Donald Trump also unveiled a USD$2 trillion rescue stimulus package, following a similar tune to other Governments around the world, the package is designed to support businesses and provide financial aid to those households most affected by the Coronavirus outbreak.
For Commodities, the price of Oil (Brent Crude) fell (-65.5%) across the quarter after OPEC (The Organization of the Petroleum Exporting Countries) and Russia ended a 3-year production agreement. OPEC’s take-it-or-leave-it ultimatum of an output cut of 1.5mb/d (an attempt to support prices during slow global economic growth) was rejected by Russia. The current agreements expire at the end of March, from April 1, producers from the group can ‘open the taps’ and increase output with no restrictions. Iron ore enjoyed modest gains (+4.37%) for the month, showing short term resilience against the weakening economic outlook. The price was largely supported by the supply side, with Brazilian producer Vale announcing it was temporarily halting operations at its Malaysian port due to the Coronavirus outbreak. This situation may eventuate locally in Australia, but for now prices are finding some strength due to declining inventories in China. In the near-term prices are expected to decline in line with reduced global demand for finished steel.
For the Fixed Income sector, even in the low yield environment, has shown this quarter why it has a quintessential place in any diversified portfolio – especially if growth continues to trend downwards. Domestic Fixed Income returned a pleasing (+3.0%) return for the quarter, outperforming Domestic Equities by (+27%).
Perks Private Wealth discusses investments and infrastructure with Magellan's Gerald Stack. Watch the video...