Here are the key factors influencing Aussie stocks this week, according to Pendal’s head of equities Crispin Murray (pictured above). Reported by portfolio specialist Chris Adams.
The ASX has remained largely resilient despite a second wave of Covid-19 in the US and Europe and a lack of tangible progress on a US fiscal package.
The S&P/ASX 300 fell 0.22% last week. In the US the S&P 500 was off 0.51%.
We continue to see some rotation in favour of value and cyclicals — probably helped by expectations that a Democrat sweep in November’s election will lead to larger fiscal stimulus.
This has also encouraged US bond yields to break higher.
Key near-term risks include a challenged election result in the US and the potential for rising cases and hospitalisations in Europe leading to greater lockdowns.
On the plus side, the potential removal of election uncertainty and the scope for more stimulus remains supportive for markets. New data from vaccine tests is likely to be available this week.
Covid update
Case numbers are climbing in the US and Europe, the latter driven by a surge in France. US hospitalisations are up by a third from recent lows, while in France the rate is half that of the previous high.
The key factor to watch is whether the increase in hospitalisations leads to more lockdowns. This is a greater risk in Europe than the US, where hospital capacity does not appear under pressure.
There is also scope for further policy support in Europe, via an extended asset-buying program from the ECB and a credit-funding program.
There could be significant newsflow on a vaccine this week with Pfizer due to report interim indications.
The consensus expectation is for a vaccine success rate of 70-75%. Anything better would make a material difference in the appeal and the time it takes to contain the spread of the virus.
Economic outlook
The US economy continues to hold up well despite the second wave of cases, uncertainty around the election and the lack of a fiscal package.
Housing remains a strong factor. House prices in the US are rising materially, driven by cyclical and structural factors.
In combination with a rally in equities, this has led to new highs for consumer net worth, which is likely to support further consumer spending.
Central bank stimulus remains substantial, continuing to rise last week. M2 money supply is now up 24% year-to-date.
Europe is more of a concern. There are signals that the rising numbers of cases is having an impact on activity. PMIs in the Eurozone and the UK have rolled over in October.
Election outlook
With a week to go the presidential race has not seen any significant shift in betting odds or polls.
There are some signs the senate race may be a bit closer than previously thought. This increases the likelihood of a large fiscal stimulus, which has been driving the rotation to value and cyclicals in recent weeks.
Market outlook
Expectations of a fiscal splurge after a Democrat win have encouraged bond yields to continue creeping higher. They have broken through recent resistance levels and the curve has steepened.
A steeper yield curve and higher bond yields are positive for financials, which performed better this last week.
The Australian market largely held onto its month-to-date gains. Banks continue to bounce back, mainly driven by investors closing down underweights.
Banks were up 1.2% for the week and 11.2% for the month compared to a 6% gain for the S&P/ASX 300.
Trading updates from AGM season, coupled with loosening domestic restrictions, were generally supportive for some of the more cyclical parts of the market.
Defensive stocks generally underperformed as people rotated into banks and cyclicals.
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Here’s the bond market outlook from Pendal portfolio manager Tim Hext ahead of next week’s interest rate decision. Reported by portfolio specialist Dale Pereira
It’s been an eventful time in the bond market as Australians prepare for Tuesday November 3 – not the Melbourne Cup or the US election, but the RBA statement.
Since early September the RBA has been dropping hints about further easing and the market is now largely priced.
We managed to pick up on the hints and have been well placed for the moves.
A cash rate cut to 0.10% and 3-year Yield Curve Control to 0.10% seem certain. The ES account interest rate (RBA interest on surplus balances) will likely go to 0.01%.
This last one is important because it becomes the effective cash rate as the RBA has left huge surplus balances in the market.
This may see some cash products tip into negative rates. The RBA was keen to avoid this earlier in the year but seems comfortable with it now.
Quantitative Easing
Quantitative Easing (QE) is also likely.
The market expects the RBA to announce a program of some $100 billion of bond buying over the next year.
This will likely be outstandings weighted, meaning about $65 billion in government bonds and $35 billion in semi-government bonds.
This will account for about a quarter of government new issuance and almost half state government new issuance.
This last one is important — Governor Lowe has been very vocal about states needing to collectively spend an extra $50 billion to help the recovery. It might seem rude to urge this and not assist.
Markets are now trading Australian 10-year bonds at flat to US 10-year bonds after an average of 25 basis points over the last six months.
Importantly, the expectation of easing has seen a weaker Australian dollar.
In a recent speech Governor Lowe was explicit in his concerns that higher rates here would make the currency stronger — an outcome no country wants during a recovery.
This shows international factors have a huge impact on our monetary policy.
So come Tuesday November 3, markets expect a rate cut and QE.
Two undecided factors are the interest the RBA will offer on ES Balances and how much and what for QE.
For bond managers like us, how far out the bond curve they buy will be vital for relative value and what we hold.
Modern Monetary Theory
We keep getting asked: “is this Modern Monetary Theory?”
Technically no, but effectively yes.
MMT urges money financing — the RBA printing money and giving it to the government. QE involves the government issuing bonds to the market and the RBA then buying some of them from the market.
The RBA thinks this is a vital distinction, but a casual observer might call it a nuance.
Tim Hext is a portfolio manager with Pendal’s Bond, Income and Defensive Strategies team.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Find out more about our investment capabilities: https://www.pendalgroup.com/about/investment-capabilities
Contact a Pendal key account manager:
https://www.pendalgroup.com/about/our-people/sales-team/
Here are the key factors influencing Aussie stocks this week, according to Pendal’s head of equities Crispin Murray (pictured above). Reported by research analyst Lee Ma.
AUSTRALIAN equities have continued to perform well despite rising Covid cases overseas.
In three weeks we could know the result of the US election and have positive vaccine data. This has kept investor sentiment buoyant.
The S&P/ASX 300 Accumulation Index lifted 1.2% last week and made further gains on Monday.
Growing confidence on the election outcome and the likelihood of a January stimulus package up to US$3 trillion (in case of a Democrat sweep) sparked predictions for a value resurgence.
Banks (+2.8%) did well over the week as a result, though they were still down 16% this year (versus -5% for the market).
Covid outlook
Case trends are deteriorating in the US and Europe. Some European countries such as France are clearly in worse shape. This is leading to the reinstatement of partial lockdowns which raises concerns over economic growth.
On a 7-day rolling average, France’s daily new confirmed case number has exceeded 300 cases per million people, overtaking the UK (about 250) and the US (175). The US was at 200 on its worst days in July.
The positive test ratio remains meaningfully lower than the first wave, which means there was likely substantial under-reporting of cases back then.
More importantly, we have seen an uptick in hospitalisations in the US and Europe. While death stats are still trending sideways, hospitalisation is something we watch closely.
On the vaccine front, we are getting close to the first Phase 3 vaccine data. There was bad news as Johnson & Johnson paused its trial without a clear explanation. This is another adenovirus-based vaccine like AstraZeneca’s which also had safety concerns in its phase three trial.
But it’s perhaps more important that the window for something to go wrong with the mRNA vaccines (Pfizer/Biotech and Moderna) is closing.
It has been four weeks since AZ had issues. The trials would have seen thousands get their second booster shots, so from a health perspective nothing serious appears to have emerged.
The market will closely watch the vaccine’s efficacy. We may get close to having statistically significant data by the end of the month, given the current number of Covid cases.
The vaccine will probably not be ready for FDA approval at that point, but it will be reported, given its materiality.
Economic data and policy outlook
Domestically, we had significant news with RBA Governor Phillip Lowe announcing a shift in the RBA’s policy framework, similar to the Fed’s recent communication.
This was not completely unexpected given the state of global central bank thinking.
The key points were that inflation has proven stubbornly low in Australia and globally, requiring central banks to be less cautious on pre-empting inflation.
The RBA does not expect to increase the cash rate for at least three years. The governor spoke to other easing measures which may be needed given the level of stimulus seen in other countries.
He noted how “high” Australian 10-year bonds were compared to the rest of the world. This may lead to the RBA extending out its bond-buying or yield-targeting.
Philosophically he noted the RBA’s three objectives were price stability, full employment and the economic welfare of Australians. Stopping structural unemployment was better for financial stability.
He also made note of Australia’s high level of savings which reflects uncertainty and unease. The RBA will need to help them get over the fear hump eventually.
While none of this messaging is new, the way it was delivered in our view reinforces a core premise that policy makers are aggressively supporting growth, which is upbeat for markets.
The Australian economy has the potential to surprise to the upside in growth terms next year if it can steer clear of lockdowns.
In the US data remains good, though it may be slowing down slightly. Retail sales (ex-auto) accelerated to 10% over the month (annualised) from 8%.
The other surprising data is the surging number of new businesses, which almost doubled to 1566 for the third quarter as people who lost their jobs set up on their own. This is reflected in a sharp rebound in small business confidence.
State Tax Revenues have recovered on the back of good retail sales and a strong property market. This is important because it reduces the need for further layoffs, and might spur further spending on the infrastructure side.
Markets outlook
The governor’s comments exerted a strong influence on our markets last week, leading to a lower 10-year bond yield (0.72% vs 0.80% a week ago) and a weaker Australian dollar (down 2% to 0.7081 AUD/USD).
It was also supportive of the equities market.
Overseas, market performance continued to be somewhat benign on the back of rising Covid cases. Our proxy for value v growth (Russell 3000 v NASDAQ) keeps bouncing off its lows, but was unable to make a break last week.
Banks led the market domestically last week on the back of the latest government budget and dampened concerns on BDDs from the RBA’s comments.
Resources softened (-0.5%), which coincided with some weaknesses in the iron ore price (-2%).
As people close up their banks underweight, it is likely Resources have been used as a funding source.
Other domestic cyclicals continue to do well, and as do growth names in general.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Find out more about our investment capabilities: https://www.pendalgroup.com/about/investment-capabilities
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EMERGING markets investors must have a strong understanding of country-level factors. Global Emerging Markets Opportunities portfolio managers James Syme and Paul Wimborne (pictured above) explain their approach using Thailand as an example.
Emerging markets go right or wrong at country level, but there are some similarities between economies and markets within particular regions.
Examples include the commodity dependencies of Latin America and the Arab Gulf or the euro-linkage of Central Europe.
One of these similarities is the relative stability of the four South-east Asian markets — Thailand, Indonesia, Malaysia and Philippines — since a period of extreme economic and political volatility from 1996 to 2006.
That stability has been weakened by the economic and social effects of coronavirus, notably in Thailand.
Thai politics have been deteriorating since the mid-2000s due to broad tensions between a reform-oriented, largely provincial political movement and a conservative, largely Bangkok-based elite with strong links to the royal family and the military.
This second group has been in power under the military-backed government of former army chief Prayut Chan-o-cha since the 2014 coup.
This year Thailand has experienced an upsurge in anti-establishment protests that began in February when the Election Commission banned the progressive Future Forward Party.
Covid-related lockdowns led to a period of calm, but protests have picked up again in recent months.
Protestors are demanding the government’s resignation, the dissolution of parliament and fresh elections under a new constitution. Demands also include a reduction in the monarch’s roles in government and the military. This is intensely controversial for the royalist elite and may prove a particular source of tension.
The government seems unwilling at the time of writing to engage with protestors. Instead, it is again relying on technocratic delivery of a strong economy to mollify popular unhappiness.
With policy makers expressing concern about the 2021 tourist season, the ministry of finance (and its new head, Arkom Termpittayapaisith, appointed as Finance Minister on October 5) is turning to fiscal stimulus to support the economy.
One of the key measures is a consumption support scheme for the fourth quarter of 2020. This is modelled on the “Shop for the Nation” scheme deployed in 2019 but at a larger scale, allowing up to THB 30k (around US$1000) of consumer spending per citizen to be tax deductible from income taxes.
Finance minister Arkom previously worked in the transport ministry, where he played a key role in several major transport infrastructure projects. Commentators assume he has been picked for the finance ministry to push more of these kinds of projects through with the aim of further supporting economic growth.
The twin policies of running a large current account surplus and accumulating foreign exchange reserves has been a consistent feature of economic policy in Thailand since 2006.
This requires the management of exchange rates to prevent the Thai baht strengthening against the currencies of trading partners. This policy looks to be continuing.
Thai foreign exchange reserves are up 10% to US$238 billion this year. This policy, combined with the economic impact of Covid-19, means monetary policy has had to be kept loose.
The Bank of Thailand’s policy interest rate, the one-day repurchase rate, remains on hold at a record low of 0.5%.
The monetary policy committee is reported to be considering unconventional monetary policy measures such as quantitative easing or negative policy rates.
If fiscal policy (described by the central bank as “the main driving force behind economic recovery”) is not sufficiently stimulative — and with policy rates near the zero lower-bound — unconventional policies may be seen in Thailand.
Ultimately the “fortress balance sheet” approach to foreign exchange reserves offers economic stability and security.
But it’s dependent on a model of under-consumption and some degree of financial repression of people who are both workers and consumers.
This can minimise financial market concerns about political unrest, and may once again allow the government to face down its critics.
With tourism yet to show signs of recovery, we remain zero-weight Thailand and prefer to look for recoveries in the more domestically-driven part of the emerging market equity asset class.
James Syme and Paul Wimborne are senior fund managers and co-managers of Pendal’s Global Emerging Markets Opportunities fund.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Find out more about our investment capabilities: https://www.pendalgroup.com/about/investment-capabilities
Contact a Pendal key account manager: https://www.pendalgroup.com/about/our-people/sales-team/
RESPONSIBLE investment leader Regnan has been appointed to the Future-Fit Development Council, a network of companies and investors working to establish a global business benchmark for sustainability.
UK-based Future-Fit has developed a free self-assessment tool – the Future-Fit Business Benchmark – which any business can use to report its contribution to real-world progress in environmental and social issues.
Regnan will help Future-Fit accelerate its work with the global investment community.
“Regnan is well recognised for its rigour in analysing the impact of sustainability issues on companies,” said Regnan’s head of advisory Susheela Peres da Costa (pictured above).
“We are delighted to have found in Future-Fit a partner committed to advancing an equally systematic approach to the impact companies have beyond their boundaries.”
Regnan works to improve sustainable performance by addressing Environmental, Social and Governance (ESG) issues.
The advisory — which is part of Pendal Group — recently appointed a London-based impact investment team to launch the Regnan Global Equity Impact Solutions strategy in late 2020.
The future of ESG integration and engagement
Future-Fit co-founder Martin Rich said he was “delighted to embark on this partnership with Regnan, a true global leader in the responsible investment market.
“Regnan’s commitment to embed the Future-Fit Business Benchmark into the heart of the new Global Equity Impact fund is incredibly powerful in showing how investors can take a holistic approach to evaluating and encouraging responsible and sustainable business.”
The Future-Fit Business Benchmark translates systems science into practical, free-to-use tools designed to help business leaders, investors and policy makers respond effectively to the world’s biggest challenges.
Future-Fit’s members work closely to stress-test and co-evolve the benchmark to be as useful and usable as possible for businesses of any size and sector.
The UK-based charity’s mission is to establish “a society that protects the possibility that humans and other life can flourish on Earth forever”.
Find out more about Future-Fit here.
Regnan is a global leader in long-term value, systemic risk analysis and responsible investment advice.
Last year Regnan appointed a London-based impact investment team to launch a Global Equity Impact strategy in late 2020.
Regnan recently co-authored a paper with the Principles for Responsible Investment, Active Ownership 2.0, which sets a new benchmark for responsible stewardship. Regnan is wholly owned by Pendal Group.
PENDAL has joined Climate League 2030, a new private sector-focused initiative to support emissions reduction in Australia.
Launched today, Climate League 2030 is a ten-year plan which aims to address climate change in Australia in line with the Paris Agreement goals.
The initiative — backed by Pendal Group and 15 other institutional investors — is co-ordinated by a collaboration of Australian and New Zealand institutional investors known as the Investor Group on Climate Change.
The League supports efforts to mitigate systemic risks that climate change poses to the economy and our communities. It also promotes new job and investment opportunities as part of the transition to net zero emissions.
Pendal will commit with other investors — and soon companies, banks and insurers — to take action on reducing annual emissions by at least 230 million tonnes before 2030.
This represents a 45 per cent reduction in Australia’s emissions compared to 2005.
The reduction could be even greater based on different emissions projections for 2030, such as recent federal government data that includes a number of new assumptions about mitigation policy outcomes.
The initiative aims to galvanise private sector action to help shift Australia’s emissions trajectory towards a 2030 outcome consistent with the Paris Agreement and the best available science on keeping global warming to 1.5 degrees celsius.
We look forward to sharing more in time about our participation in this initiative, as part of our broader responsible investment and stewardship activities.
Watch the short video about Climate League 2030 above or red the visit www.climateleague.org.au to find out more.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Find out more about our investment capabilities: https://www.pendalgroup.com/about/investment-capabilities
Contact a Pendal key account manager: https://www.pendalgroup.com/about/our-people/sales-team/
Pendal Short Term Income Securities Fund (APIR: WFS0377AU, ARSN: 088 863 469)
With effect from 20 October 2020, the “Pendal Enhanced Cash Fund” will be renamed the “Pendal Short Term Income Securities Fund” (Fund).
The change of name will more accurately reflect the Fund’s assets which comprises of income securities, and the Fund’s portfolio construction process which targets short term securities in achieving its investment objectives.
There will be no changes to the investment strategy, objective or distribution frequency of the Fund.
An updated Product Disclosure Statement (PDS) providing information on the Fund will be issued on 20 October 2020 and made available on www.pendalgroup.com
Here are the key factors influencing Aussie stocks this week, according to Pendal’s head of equities Crispin Murray (pictured above). Reported by portfolio specialist Chris Adams.
RISING Covid numbers in the US and Europe and further uncertainty over a US fiscal package have not deterred the local market.
The S&P/ASX 300 made strong gains last week, rising 5.4% to bring the calendar year-to-date return to -6.2%. The S&P 500 was up 3.9%.
At this point investors seem content that the resurgence in cases is not denting activity and economic recovery remains in place.
A raft of stimulus in the federal budget served as a reminder that policy makers remain ready to step in to underpin the economy.
We are mindful that fund flows reflect a generally cautious mindset from investors. This also remains supportive for equity markets.
Covid data
New case trends continue to deteriorate in the US and in Europe. The seven-day average of daily new cases in the US has returned to about 50,000 compared to about 35,000 in early September.
The positivity rate and hospitalisations have also gradually picked up in recent weeks. This has not yet fed through to mortality rates, but the lagged effect and onset of cold weather is expected to drive an increase here too in coming weeks.
Most US states are seeing an increase in new cases. The biggest increase has been in New York despite moderate restrictions which remain in place there.
Europe also continues to deteriorate, but as with US this is not translating into excess strain on the health system so far.
Most importantly there is no evidence in either location that the increase in cases is affecting general economic activity levels. The recovery remains in place. This is the key aspect to watch, as any shift in expectations here could be material for markets.
Australia remains far better positioned than Europe and the US despite some setbacks last week.
Economic data and policy
The Australian federal budget was stimulatory, as expected. On balance, the scale of injection was probably a touch larger than consensus was looking for.
Key elements included:
– Bringing forward personal tax cuts, worth $7 billion in FY21 and $17 billion across FY21-22. Importantly, the cuts are retrospective which means the flow-through will commence straight away. This is positive for retail spending.
– Income support payments ($2.6 billion).
– New worker subsidies. This is worth $4 billion, but benefits should flow through in FY22-23, so this is not as immediate in impact.
– Additional infrastructure spending worth $9.7 billion. Again, this is spread over four years so it’s not as immediately beneficial in its full scale. However the “use it or lose it” directive to states should help accelerate projects.
– Accelerated investment allowances worth $26.7 billion through FY23-24. This investment would probably have occurred anyway, but brings it to the front end to help kick-start confidence.
The scale of measures, which will drive the budget deficit close to 12%, demonstrates the willingness of policy makers to underpin the economy.
The shift in mindset away from fiscal prudence and balance budgets is material and suggests there is more the government can do if required.
At this point the constraint on fiscal stimulus is either rampant inflation or loss of confidence in government credit. Neither factor is in play right now.
On the data side there were signs of a pick-up in Australian payrolls, which had been dragged down by Victoria since July. Overall unemployment is expected to peak at 8% compared to compared to the previous prediction of 10%.
Globally, data continues to indicate the recovery has not been affected by a rise in cases.
Leading indicators of GDP and corporate sentiment continue to rise. German retail sales have surged well above pre-Covid highs.
Global fund flow data continues to show net cumulative outflows out of equity funds and into bond funds. We see this as supportive for equity markets. Sentiment is a long way from euphoric despite the rapid rebound.
Markets
Equity markets were strong last week despite rising Covid cases. The prospect of a fiscal deal in the US prior to the election seems to be receding.
Senate Republicans seemingly do not want to complicate the process of installing a conservative Supreme Court justice prior to the election.
The bookies still have Biden at a 65% chance of a win, while the odds of a Democrat sweep – taking both the White House and a Senate majority – are now at 60%.
There is a view emerging that such a sweep could see the Democrats expand their current proposal to a figure north of US$2.5 trillion. This may explain the market’s seeming sanguinity on the issue of fiscal stimulus.
Commodity prices reflected a sunnier outlook for global growth. Brent oil rose 9.1%, iron ore 2.4% and copper 3.4%. Gold was up 1%. US bond yields are testing the upper range of their recent trading range.
All sectors in the S&P/ASX 300 made gains. The key laggards were defensives – particularly those bond-sensitive ones.
Crispin Murray is Pendal’s Head of Equities. He has more than 27 years of investment experience and a strong track record leading Australian and European equities funds. He manages a number of our flagship funds along with one of the largest equities teams in Australia.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Find out more about our investment capabilities: https://www.pendalgroup.com/about/investment-capabilities
Contact a Pendal key account manager: https://www.pendalgroup.com/about/our-people/sales-team/
Here are the key factors influencing Aussie stocks this week, according to Pendal’s head of equities Crispin Murray (pictured above). Reported by portfolio specialist Chris Adams.
THE Covid situation in Australia continues to improve but deteriorating case numbers and softer macro data overseas weighed on the local market last week.
The S&P/ASX300 fell -2.8% for the week.
The US equity market reflected growing concerns on a number of fronts, but ended the week up 1.5% after a late rally.
We believe this reflects the notion that softer data increases the likelihood of further US policy stimulus.
Meanwhile Trump’s falling popularity is reducing fears among Democrats that a package could harm their election chances, giving them more confidence to support it.
The bookies continued to mark Trump down last week. An average betting indicator spiked from 55% to 61% in Biden’s favour after the first debate.
At this point the odds of a Republican versus Democrat controlled Senate are line-ball. This is a key issue. There seems to be underlying market concern that a Democrat White House with a big Senate majority would provide scope for material policy change.
Covid outlook Australian case trends continue to do well in stark contrast to September.
Community transmission has improved for 10 days in a row and remains the key number to watch. Optimism on this front is prompting outperformance among domestic re-opening plays such as travel stocks.
New daily cases in the US continue to trend sideways, though at a higher plateau than late August and early September. Hospitalisation rates are up slightly. The mortality rate continues to fall.
Concern about the impact of colder weather – particularly the risk of a higher death rate – continues to weigh on market sentiment.
European trends remain concerning but are no worse than last week.
The daily moving average of new cases in France has stabilised. However the plateau is at a much higher level than previous waves – similar to the US. Trends in Spain are slightly better, while there is a view the UK is stabilising. So far higher case numbers in France are not leading to the same crisis in healthcare – similar to the US.
Activity data has remained resilient, suggesting it is not leading to a material economic impact thus far.
Macro outlook
New US data was on the softer side last week. Headline employment continues to grow, but at a declining rate. For example, another 784,000 service sector jobs were added in September, versus an average of 2.2 million in each of the previous three months.
The unemployment rate fell to 7.9% but this number was helped by the participation rate falling to 61.4%. There are still 7.8 million fewer jobs in the non-government sector than pre-Covid.
The number of permanent job losses continues to grow as some “temporary” losses are reclassified.
All this is likely to increase pressure on policy makers to act. The growth in permanent job losses – and the implied degradation in skills and impact on mental health – are areas of key concern.
The case for further stimulus is reinforced by the fall in real personal income. This fell 2.7% in August as previous stimulus packages such as the Presidential program rolled off.
The net effect of falling personal income and decelerating employment trends are starting to prompt concern of disappointing growth in Q4 2020.
The savings rate will be a key swing factor here. The surge in stimulus payments saw it rise to 14% in recent months, up from the long-term trend of 8%.
The extent to which households will draw down on accrued savings in coming months to offset lower payments remains to be seen.
While the data is softer, it is important to bear in mind that the US economy continues to recover. However the pace of recovery is slowing.
Recent data highlights the need for further stimulus to maintain recovery rates – and there appears ample scope to do so.
The level of slack in the economy reduces the risk of stimulus-fuelled inflation, meaning little constraint on funding or funding costs.
Previous Democrat reticence to support the Republican campaign with improved economic data also seems to be waning, along with Trump’s popularity.
We remain of the view that policy makers will act if the situation starts to deteriorate. This notion should be supportive for markets.
Markets
Oil continued to weaken last week. Brent Crude was off 6.3% as markets tempered expectations of a rebound in demand. The impact of aircraft fuel is playing a role in this. However diesel demand has also been weaker than many would have expected at this point.
Other global demand proxies held up better. The copper price rose a little while the AUD appreciated 2.1% against the USD. Gold gained 2.3%.
Australian equities were led down by large caps. Energy (-6.8%) fared worst, but Banks (-4.6%) and Staples (-4.9%) were not far behind.
Domestic cyclicals tended to outperform, driven by an expectation of further stimulus from this week’s federal budget and optimism about the easing of border restrictions.
Thematic effects tended to drive most stock moves, with little stock-specific news.
Crispin Murray is Pendal’s Head of Equities. He has more than 27 years of investment experience and a strong track record leading Australian and European equities funds. He manages a number of our flagship funds along with one of the largest equities teams in Australia.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Find out more about our investment capabilities: https://www.pendalgroup.com/about/investment-capabilities
Contact a Pendal key account manager: https://www.pendalgroup.com/about/our-people/sales-team/
BT Active Balanced PST (APIR: RFA0823AU)
We are writing to let you know that the BT Active Balanced PST (ABN 28 200 793 048) (PST) in which you are invested will be terminated on 30 October 2020.
In a recent review, of the PST the Trustee noted that the PST has a small number of investors and low funds under management. This means it is becoming less viable and, as a result, a decision has been made that it is in the best interests of investors for the PST to be terminated.
Further, from 30 September 2020 we’ve changed the trustee for the PST to BT Funds Management Limited ABN 63 002 916 458, AFSL No. 233724 (BTFM). This is to ensure compliance with draft legislation to implement one of the Royal Commission Recommendations, under which the trustee of a registerable superannuation entity will be prohibited from holding any other role or office.
What does this mean for me?
From 29 September 2020 any request for an application or withdrawal from the Active Balanced PST will be assessed by the Trustee on a case by case basis and will depend on whether the price would be fair and reasonable for unit holders. If this cannot be satisfied, then the Trustee of the PST may not be able to process your request. If you have arranged regular scheduled contributions to be made into your investment, they may be returned to you.
Payment of the proceeds of your investment holding will be made by the end of November 2020 and credited to the nominated bank account we have on file for your PST account. A separate letter confirming this payment will be sent to you.
A small proportion of your holdings will be withheld to meet outstanding tax payments. If there are residual amounts owed to you after any outstanding taxes are paid, we expect to pay these to you by October 2021.
We understand that this is an important change and encourage you to seek independent financial advice from your financial adviser and specific tax advice from a registered tax agent.
What do I need to do?
To ensure that the proceeds of your investment are credited to your preferred bank account, and that you don’t miss out on important communications about your investment(s), please contact us if your bank account or mailing details have changed. To do this, you can write to us at the following address:
BT for Pendal Fund Services Limited
Attn: Corporate Accounts Team
GPO Box 2675
Sydney NSW 2001
Your letter should include the following details:
− Your investor number: the C number found at the top of this letter
− Your investment name: BT Active Balanced PST
− What you would like to change e.g. your address or bank details
− Authorised signature(s) for your account: this has to be what was nominated at the time of your investment application (i.e. authorised signatories must sign either individually or any two jointly)
We’re here to help
If you have any questions about the PST termination, and your investment with us please call our Customer Relations team on 1800 813 886 between 8.00am and 6.00pm (Sydney time) Monday to Friday – we’d be happy to help.
We can also help if you need historical transaction, to assist your financial adviser or tax agent to determine your taxation position (e.g. any likely capital gain impact) resulting from the termination.