Some of you may have seen or heard of the recent policy action from central banks around the world in response to the significant economic and market impact caused by the response to control the spread of the virus.
The central bank response is one of the biggest stimulus packages we’ve ever seen and the right response in these trying times. Unfortunately, the response may have come about 2 weeks too late, with central bankers failing to heed warnings and learn from the mistakes made in the past in terms of acting too late. Potentially, a lot of the extreme market events we’ve seen in the last 2 weeks could’ve been lessened or softened if they had acted ahead of time.
The delayed response, whilst now showing signs of assisting markets in functioning more appropriately, will most probably mean they will need to provide even more stimulus at some stage over the next few weeks. The recent response, if levied 2 weeks ago, might have been sufficient.
In addition, governments may have been too slow to provide fiscal stimulus. Those that have provided stimulus, i.e. the Australian government, may have provided too little. Whilst the amount of stimulus required is largely guesswork from here, those more informed are landing at a required amount of approximately 20-30% of GDP (economic growth). To put that in perspective, for the Australian government, that would mean a package of $380 billion to $570 billion of fiscal stimulus, whilst for the US government, it would mean a package of more than US$4 trillion. That number is unlikely at this stage with the most recent reports indicating US$1-1.2 trillion which would involve US$500bn in direct payments to US citizens.
Coming back to the central bank response, a lot of it is quite technical, but the main point of it is to:
Below is slightly more detail, which we hope is a fairly easy to understand summation of the policy response we’ve seen to date:
Both central banks and governments now need to stand together and provide support – support to businesses, support to households, and support to investment markets. You can’t have “lock-down” with no support. We expect that support to be forthcoming.
As such, whilst we can’t yet say we’re through the worst of this from an investment market perspective, we do believe those support measures will mean we’re through the most of it.
As always, please contact us at any time to discuss your investment portfolio or financial strategy.
The Australian equity market started the year with great gusto with key economic metrics broadly supporting the market. This swiftly turned in February and the local bourse continued to fall throughout the remainder of the quarter. The slide was largely due to the uncertainty over US President Trump's tariffs. Fear and speculation finally became reality as the index began its steep decent in early February, falling circa -10.3%; an official correction and potentially heading towards bear territory and global recession. The Australian market reacted sharply and negatively to the Trump tariffs during the March quarter and overall experienced its steepest losses since the onset of the COVID-19 pandemic. The Australian equity market ended the quarter down (-2.8%).
Although we haven’t received any calls, as we suspect most people are quite familiar with market volatility over the years, we thought this update would put some recent market movements into perspective.
It was a nervous start to the quarter for the Australian equity market (ASX 200), as the impact of China stimulus measures and implications of rising bond yields was being digested. The resources sector felt the brunt of this nervy start falling over 5% for the month of October, however the broader market did manage to reach an all-time high on the 15th of October closing above 8,300 for the first time.