Australian Bond Exchange

ABX Weekly 10/07/2019

Market Update  

 

An example of a once considered abnormal circumstance but now viewed as being normal is the prevalence of negative-yielding bonds yields. Thought to be an outlier phenomenon limited to Japan, has now become a common sight around the globe. By the end of May 2019, an astounding 21% of all investment grade bonds globally had a negative yield. According to Bloomberg data, the total amount of negative-yielding bonds globally reached a new record level of $ 13 trillion USD. That means investors are essentially paying for the privilege of lending money to governments and banks. However, there is more to fixed income than just government and bank bonds. Even when yields are very low a way to generate attractive risk-adjusted returns from defensive corporate bonds without adding duration or higher volatility risk. We believe that accurate and transparent risk measurement is fundamental to making smart and diversified investment decisions to keep your capital protected while getting the most of your hard-earned money. 

The Aussie dollar also has the potential to bounce off strong support and rally from here. The crowded trade on the A$ has been to be short, but the ice feels like it is beginning to get thin now. We all know what happens when it cracks under too much weight 

And then there is the small matter of the passage of a $158 billion income tax package. To its credit, Labour got on board with the package, and while it may look to revoke stage three of the package at the next election (and flagging this now is a massive strategic mistake in my view), the ‘anticipatory’ effects will still run through.

As the government noted, starting from next week low and middle-income earners with an income up to $126,000 will receive up to $1080, or $2160 for dual-income couples, with the increased tax relief to apply from the 2018-19 income year. The top threshold of the 19 cents in the dollar tax bracket has been increased from $41,000 to $45,000, and once the plan is fully implemented, around 13.3 million taxpayers will pay lower taxes. From 2024 a 30% rate will apply to all income between $45,000 and $200,000 

The Federal Reserve’s debate shifted from how much to cut interest rates later this month to whether to move at all after hiring in June exceeded the expectations of economists 

The June employment figures should ease concerns at the Federal Reserve of a sharp slowdown in the US economy. The mosaic of data indicates growth is easing in the US economy, but it has still become the longest economic expansion in its history.  US employers added 224,000 jobs in June, exceeding expectations for a 165,000 increase. That represented a much stronger figure than the unexpectedly low initial figure estimating 75,000 jobs has been added, which was revised down to 72,000 in the latest report. There was a wide range in where the jobs were added, with the health-care sector particularly strong, but manufacturing adding just 17,000 jobs. Jobs growth at factories has averaged only 8,000 per month in 2019 and many indicators have been soft in the sector lately.