Volatility in markets for the rest of 2020?
It’s been an interesting month so far as it appears that governments and health professionals are making decisions on a daily basis which can be confusing and inconsistent depending upon where you live.
It was great to see this week schools beginning to reopen and you definitely get the vibe that it is getting busier and that the communities are “in front” of the government’s current lock down rules as we have all helped to reduce the curve and train ourselves (in the majority) about social distancing.
In the markets last week we saw that retail investors and superannuation funds stand to lose more than $26bn from delayed or cancelled dividend payments, making this the biggest dividend leakage since the global financial crisis and robbing the economy and retirees of much needed cash just as the economy has stalled from the coronavirus pandemic.
Westpac was the first bank to advise that it would be holding onto its dividends followed by ANZ advising that they delay up to $1bn in dividends due to reduced profits. Shareholders need to prepare themselves for a meaningful drop in dividends at least for the shorter term.
On the 5th May, the Reserve bank Board decided to maintain the current policy settings and leave interest rates unchanged at 0.25%.
In his statement, Philip Lowe, explained that the “global economy is experiencing a severe downturn as countries seek to contain the coronavirus. Many people have lost their jobs and a sharp rise in unemployment is occurring. At the same time, the containment measures have reduced infection rates in a number of countries.” He believes that if this continues, then a recovery in the global economy will start later this year and this has been supported by the large stimulus package and the significant easing in monetary policies by our banks.
On a final note, he added that the Board will not increase the cash rate “until progress is being made towards full employment…and inflation is sustainably within the 2-3% target band”. This view means that we are going to be in a long period of low interest rates which puts further pressure on meeting lifestyle needs from Australians savings dovetailed by a reduction in fully franked dividends.
Share markets have seen a reasonable bounce lately but the big talking point at the moment is the concern of the second waive as social isolation restrictions begin to ease. Global markets have recently been driven by the prospect of economies beginning to reopen after a period of hibernation over the past few months. What we can all agree on is that there will be volatility in markets for the rest of 2020.
Finally, it is great to see that as Australians, we are fighting the virus and we are winning. With the government stimulus packages in force supporting both employees and businesses to get through the worst of this crisis it is encouraging signs for our economy to rebound and again begin to gain momentum.
For me it seems like a lifetime ago that the that we saw scenes of thousands of people queuing at Centrelink offices around the country but the reality is that it will take time and money to get the economy (and our friends and family) back to full employment.
Finally, on a sad note, we were advised that Alan Jones was retiring today. He advised that he would not be gone from all media, but radio had to give. For many, he is the voice of the nation with the ability to reach all corners of bureaucracy to raise issues, hold people to account and fight for his listeners. He will be missed as part of my morning ritual.
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