Investment insights

Want to know the stories behind the numbers? We had Chris talk us through the latest market activity and what’s on the horizon:

After officially slipping into its first recession in almost three decades over the June 2020 quarter, the Australian economy is on the mend.

While official figures are yet to be released, Guy Debelle, the deputy governor of the Reserve Bank of Australia (RBA), told a Senate estimates hearing in October 2020 that it appeared the Australian economy grew through the September quarter.

This news was reflected in the findings of the latest NAB Monthly Business Survey. Conducted in October 2020, the survey found business confidence has risen to its highest level since mid-2019.

This was driven by the easing of the Victorian lockdowns, with confidence in industries including construction, personal services, and recreational services also increasing.

To further spur the recovery, the RBA announced a cut to the cash rate target on the first Tuesday in November 2020; it was reduced from 0.25 per cent to an historic low of 0.1 per cent. At the same time the RBA also announced a range of other measures to support job creation and the recovery of the Australian economy from the pandemic.

While this is good news for homeowners with a variable mortgage, Chris added that it’s also good news for businesses.

“If you’re a company with debt and your debt is now cheaper, the cut means you can pay down that debt quicker, or it can free up capital to do other things, whether it’s buying equipment or hiring more staff,” Chris explained.

Though investors had already priced in the likelihood of a victory for Democrat Joe Biden in the US Presidential election, the calling of the race over the weekend of 7 November 2020 saw markets globally rise in response to the news.

Australia’s S&P/ASX 200 hit 6,303.1 points on Monday 9 November 2020, its highest point since early March 2020.

With the number of daily COVID-19 cases across the US hitting all-time highs in the days following the election, one of Biden’s first actions as President-elect was to announce a COVID-19 working group. This group has been tasked with developing a pandemic response that will be put in motion assuming Biden is inaugurated on 20 January 2021.

Central to Biden’s campaign was also his ‘Emergency Action Plan to Save the Economy’, which he will likely look to implement in the early days of his presidency.

This Plan includes measures to provide aid to small businesses, increase unemployment benefits, and forgive some student loans. As part of this Plan, Biden will also look to a special wartime legislation provision to ask American businesses to manufacture the supplies necessary to help the nation through the pandemic.

While Biden may be able to implement parts of this plan through the use of Executive Orders, which allow a President to bypass Congress, other elements, such as the fiscal stimulus, will require the support of the House of Representatives and the Senate.

The balance of power in the US Senate will be decided in early January 2021, with two seats up for grabs via special elections in Georgia.

If you tend to get a natural morale boost around the Christmas and new year period, you’re not alone – it turns out the financial markets do, too. In fact, investors even have a name for it: the ‘Santa Claus rally’.

As Chris explained, a Santa Claus rally typically sees an increase in the stock market from the last week of December through to early January.

With Victoria well on its way to adjusting back to life out of lockdown and most state borders around the country expected to open in time for Christmas, Australia looks well-placed to enjoy a relatively normal start to the summer.

Looking further ahead to 2021, Chris said the expectations for a COVID-19 vaccine in 2021 also have markets feeling more positive.

In fact, the ASX jumped by 2.2 per cent at the open on 10 November 2020 following news from pharmaceutical company Pfizer that its COVID-19 vaccine could be 90 per cent effective.

The Australian Government has signed a deal to secure 10 million doses of the vaccine should it be approved for use, with Pfizer’s effort one of four potential vaccines the Government has signed up to receive.

According to the ABC, the Government is now in line for a total of 134 million potential doses.