Market Wrap April 2020

Markets

• Market Performance – The ASX200 rose 8.8% in April.
• Sector Performance – April saw the top 3 performing sectors being Energy, Information Technology and Consumer Discretionary sectors
• Global – The US S&P500 Index jumped 12.8%.
• Gold – rose to $1,702.75/oz – an all time high.
• Iron Ore – was steady at $83.50/ton.
• Oil – Brent rose to US25.27/bbl. During the month oil crude futures went into negative territory trading at -US$37.63 a barrel. With storage facilities full investors paid not to take delivery.

Property

• Housing – Dwelling prices rose 0.3% in April.
• Home Sales – volumes fell by approximately 28% in April compared to prior year.
• Dwelling Commencements – are predicted by UBS to drop to approximately 100,000 over the following year to levels not seen for decades.
• Property Prices – are predicted to fall a minimum of 10%.

Economy

• Interest Rates – The RBA cash rate remained at 0.25% in April – the lowest on record.
• Bond Yield – The Australian 10-year Government bond yield rose over the month of April to 0.89% while the US 10 year government bond yield dropped to 0.62%.
• Consumer Confidence – The Westpac-Melbourne Institute of Consumer Sentiment plunged 17.7% to 75.6 in April from 91.9 in March. This is the single biggest monthly fall in the 47 year history of the survey. The Index registered 64.6 in the recession we had in the early 1990’s and 75.5 in the recession we had in the early 1980’s.
• Exchange Rates – The Australian Dollar was steady against the US Dollar at 0.655.
• Chicago Purchasing Managers Index (PMI) – sank to 35.4 in April. This was the 10^th straight sub-50 reading. An index reading of 50 or more indicates a growing economy.
• New Car Sales – fell by 48.5% to 38,926 in April compared to 75,550 in April 2019.
• Private credit – jumped 1.1% in March being the strongest increase since 2007. This was mainly driven by business drawing down on lines of credit to insulate them in these uncertain times. The contraction in personal credit accelerated sharply with the largest decline since the GFC and a very negative sign for consumption.
• Global Growth – contracted in the Global Financial Crisis (GFC) by .0.1%. The International Monetary Fund (IMF) is projecting a 3% contraction in 2020.
• Italy, France & Spain – have seen their largest quarterly GDP falls on record.
• US Jobs – have been smashed as 33 million Americans have filed for unemployment benefits in the last 4 weeks. It is anticipated that the US unemployment rate will be between 15-20%. Only 2 months ago the US unemployment rate was at a 50 year low of 3.5%.
• Unemployment in Australia – is projected to rise above 10%.
• JobKeeper Program – has already seen 725,000 businesses register that employ 4.7 million Australians.
• JobSeeker – paid to the unemployed has risen by about 900,000 in the last 6 weeks to a total of 1.5 million people in total.

Sources: UBS, Westpac, S&P Dow Jones Indices, ABS, US BLS, CoreLogic, Morningstar

Comment – The Bank of Uncle Sam

On 9 April the US Federal Reserve announced a series of measures worth $2.3 trillion in loans to support business and the economy.

The size of this expenditure is just breathtaking.

Effectively the US taxpayer is providing loans to business to retain employees. In addition business debt facilities which would otherwise have been recalled by financial institutions or could not effectively be rolled over on maturity, and hence would have been in default, will now be bailed out by the American taxpayer or The Bank of Uncle Sam.

Effectively the taxpayer has underwritten the business community known as Main Street as well as the financial community known as Wall Street.

To put this single spending initiative into perspective the US Federal Government Budget for 2020 was originally predicted to generate gross income/taxes of $3.7 trillion, with spending predicted to be $4.8 trillion resulting in a deficit of $1.1 trillion.

So you can see the size of this commitment is 50% of the American annual budget and we are not anywhere near coming out of this recession.

Furthermore, in March the total US Federal Government Debt amounted to $23.7 trillion before the recent COVID 19 budget spending announcements. This debt was $20 trillion when Trump came to power and was $10 trillion when Obama became President. Wars in Iraq & Afghanistan, rising costs of Social Security and Medicare as well as supporting the economy & business in times such as the GFC have been expensive.

The COVID 19 Pandemic will add significantly to this pile of debt.