December and summer are finally here, along with a renewed sense of optimism that strict lockdown measures will ease by Christmas. It’s been a tough year, but once again Australians have proved extremely resilient. We wish all our clients and their families a relaxed and happy Christmas.
November was an extraordinarily action-packed month for the global and local economy. Joe Biden’s US election victory released a pressure valve on global markets, with US shares reaching new historic highs and Australian shares up more than 9% over the month.
Markets also responded positively to the potential early release of effective coronavirus vaccines despite a rise in global cases. Oil prices were quick to respond to the prospect of borders reopening, with Brent Crude up almost 22% over the month.
In Australia, the Reserve Bank (RBA) cut its target cash rate and 3-year government bond yields from 0.25% to 0.1%, or one-tenth of one percent. The RBA is not expecting to increase rates for at least three years. Early indications are that swift action by the government and the RBA have limited the impact of the COVID recession.
Economic growth is now forecast to contract 4% in 2020, before rebounding 6% in the year to June 2021. Unemployment, which rose slightly to 7% in October, is forecast to peak at 8% this year but to remain at a relatively high 6% in December 2022. This is reflected in the fall in annual wages growth from 1.8% to 1.4% in the year to September.
The Aussie dollar rose 5% on US dollar weakness in November, to close at US74c. The US currency is falling as a spike in coronavirus infections and delays in government stimulus raise the prospect of more money printing.