Australian Bond Exchange

ABX Weekly 20/02/19

20th February 2019

Market Update 

US stocks gained ground on Tuesday as upbeat results from Walmart boosted investor sentiment and high-level US-China trade talks resumed in Washington. All three major US equity indexes closed higher, with the Nasdaq ending its seventh consecutive day in the black. The benchmark S&P/ASX200 index closed up 17.1 points, or 0.28 per cent while the broader All Ordinaries was up 13.5 points, or 0.35 per cent, at 6,184.2. After the markets closed, BHP said its first-half profit fell 8 per cent because of production disruptions and a decline in commodity prices during the period.  Its underlying profit of $US4.03 billion ($A5.66b) missed consensus estimates of $US4.209 billion ($A5.91b). The world’s biggest miner declared an interim dividend of 55 US cents ($A0.77) per share, the same as last year.

The Aussie dollar spiked and then fell sharply before midday following the release of the RBA’s monetary policy meeting minutes. Aussie dollar is buying 71.14 US cents, from 71.50.

The RBA has focused quite a bit more on the potential wealth effect if house prices were to decline much further not something they have subscribed to previously, with the statement “members observed that if prices were to fall much further, consumption could be weaker than forecast, which would result in lower GDP growth, higher unemployment and lower inflation than forecast”.

This will have a negative impact on risky assets and see demand in safer assets to offset any loses. Now is a good time to investigate your super or SMSF investments and make sure its balanced against a market shakeup.

European Desk

One of the big news this year out of Europe is the 20- year anniversary of the single currency. Who would have believed over the past 10 years that the Euro would survive and in recent times even strengthen despite a very big interest rate differential between the US economy while the Fed increased interest rates over the past couple of years to over 2%. Furthermore, the recent global slowdown is hitting the European economies much harder and the German powerhouse with its huge car manufacturing industry is looking more fragile each day. On top of this, we have the ongoing saga of the Brexit with the deadline inching closer but no solution in sight. As a result of this slowdown we saw a big rally in Government bonds and investor in many parts of Europe must battle with negative interest rates again. A client of mine from Switzerland just recently told me that his Swiss bank has charged him negative interest rates for the savings he has got in his bank account with them. Imagine if banks here in Australia charged you for the money you had in them. Let’s hope our banks don’t get the idea of charging us for the privilege of holding our own money!