Aug 10, 2020 / News

Financial Planning

Market Update Winter 2020

Following the surprise market recovery experienced in April and May, we have seen many indexes continue their early stages of bouncing back. As some countries begin to relax their Coronavirus restrictions, the positive effect of reopening major economies has been felt globally. However, some uncertainty remains over how quickly economies can be reopened without risking a second wave of COVID-19 cases.

The Westpac-Melbourne Institute Index of Consumer Sentiment experienced a bounce back of 16.4% to 88.1 as at the end of May, following last month’s decrease of 17.7%. The astounding improvement in confidence can be attributed to the fact that consumers reacted positively to Australia’s successful response to COVID-19 and the subsequent relaxation of some restrictions. The flow-on increase in consumer sentiment represents the largest monthly Index rise in the history of this survey. However, this is still considered the second worst result for the index since the GFC, remaining 7.6% below the six-month average covering September ‘19 to February ‘20. More positive outcomes were seen through the sentiment indicator on the ‘economy, next 12 months’ sub index, which rebounded 32.6% from its poor April result of 53.7 to finish at 71.2 in May.

The Federal Government plans to achieve a budget surplus have been shelved in order to deliver much needed economic stimulus. It is important to note that prior to COVID-19, domestic economic growth was already below trend. This can be cited to increased levels of household debt and diminishing growth of wages, which in turn, lowered consumer spending. Despite Government stimulus and efforts from the RBA, unemployment is expected to remain at a higher level than prior to COVID-19 for some time. There are some concerns for the potential of significant unemployment growth when stimulus measures are withdrawn later this year.

While there are ongoing reports that the economic outlook will not be as severe as previously expected, sales volumes highlight that turnover has decreased 60% over the past year. That said, to assess the impact of COVID-19, the Australian Bureau of Statistics revealed the strongest rise in retail spending to date. Panic buying may possibly be the sole driver of this increase, which represents the considerable extent of cushioning being implemented by the government. Ultimately, the eventual reduction of income and employment will have a negative impact on consumer spending in the near term.

The Australian Labour Force survey indicated the decline in market conditions, with unemployment (as at June 2020) increasing by 2.2% to 7.4%, which is about 1m people currently unemployed. The underemployment figure is even higher again. While these statistics are alarming, the result was less severe than the labour conditions around the world. The government announced this month that JobKeeper payments are being made to support millions of workers across 860,000 businesses.

Australia’s gross domestic product (GDP) fell 0.3% in Q1 of 2020. While this is the first quarterly reduction in GDP since 2011, the government announced that the Q2 results are expected to far exceed Q1. COVID-19 has clearly played a significant role in this result, however, weak performance in private sector demand over the past year has also contributed.

About us

EMFS was formed in 2001 originally to service the financial planning needs of the clients of Nexia Edwards Marshall, Chartered Accountants. In addition, we now service clients referred by other accounting firms, lawyers and clients who are not serviced by Nexia Edwards Marshall. We manage funds totalling about $250m on behalf of clients.

Liability limited by a scheme approved under Professional Standards Legislation. Contents of this publication are general of nature and are not intended to be used for decision making purposes. Edwards Marshall Financial Solutions Pty Ltd ABN 45 096 434 842 is an Authorised Representative of Edwards Marshall Advisory Pty Ltd ABN 18 600 878 555. AFS Licence No. 479 792.