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Morning Market Update - 20 December 2018

Pre-Open Data

 International Market vs Australian Market

Key Data for the Week

Key economic data released this week:

  • Wednesday – US – Existing Home Sales rose 1.9% in November, to a seasonally adjusted annual rate of 5.32 million.
  • Wednesday – US – FOMC Interest Rate Decision – The FOMC raised the federal funds rate target to a range of 2.25-2.50%, as widely expected.
  • Thursday – AUS – Unemployment Rate

S&P ASX 200 Last 12 Months

Australian Market 

The Australian sharemarket ended the session down 0.2% yesterday, weighed down by Energy stocks, as key global oil benchmarks slumped between 5-7% on Tuesday night. Origin Energy lost 5.6%, Santos gave up 3.7% and Woodside Petroleum slid 1.8%.

Health insurers endured a mixed session, despite receiving approval from the Federal Health Minister to lift insurance premiums starting 1 April 2019. Medibank Private rose 1.7%, after announcing it will lift premiums by 3.3% on average, while NIB slipped 0.4%, after declaring an average increase of 3.38%. Private health insurers will lift their premiums by an average of 3.25% next year, the lowest rise since 2001.

The big four banks all posted gains. Commonwealth Bank strengthened 1.2%, ANZ lifted 1.1%, NAB climbed 0.8% and Westpac added 0.1%. 

The Australian futures market points to a 0.38% fall today, being driven by weaker US markets overnight.

Overseas Market 

European sharemarkets rose on Wednesday, as the European Commission reached a deal with Italy over the 2019 budget. The broad based STOXX Europe 600 rose 0.3% and the German DAX lifted 0.2%, while the UK FTSE 100 closed up 1.0%. 

US sharemarkets closed lower after the Federal Reserve’s decision to raise rates for the fourth time this year. Facebook fell 7.3%, following a New York Times investigation that revealed the company shared more user data with some companies than previously disclosed. By the close of trade, the Dow Jones and the S&P 500 had both gained 1.5%, while the NASDAQ fell 2.2%.

CNIS Perspective 

The imposition of regulations by APRA in 2017 to moderate higher risk interest only lending, and strengthen lending standards by banks, has proven to be a text book example of prudential regulation driving behavioural change. 

Interest only loans were being used by property investors to allow them to benefit from negative gearing concessions, which drove a property market boom. 

In 2015, almost 64% of investor mortgages written were interest only and that has now fallen to ~34%, with property prices falling almost 10% in Sydney and 8% in Melbourne. 

Yesterday, APRA announced the removal of the second leg of its regulations, being the 30% limit on interest only lending. This is after the 10% investor loan growth cap was removed in April this year, with APRA declaring both have “served their purpose”. 

Given property represents such a large percentage of wealth for Australians, a continuation of these regulations could have had a significant long term negative effect on the Australian economy. 

Hats off to APRA for having the ability to foresee a potential property bust on the horizon and for changing their regulations accordingly. 

Interest-only Lending

Merry Christmas from all of us at Cutcher & Neale Investment Services.

This will be our last Morning Market Update for 2018, the Morning Market Update will recommence in the New Year.

Should you wish to discuss this or any other investment related matter, please contact your Investment Services Team on (02) 4928 8500.


Disclaimer

The material contained in this publication is in the nature of general comment only, and neither purports, nor is intended to be advice on any particular matter.  Persons should not act or rely upon any information contained in or implied by this publication without seeking appropriate professional advice which relates specifically to his/her particular circumstances.  Cutcher & Neale Investment Services Pty Limited expressly disclaim all and any liability to any person, whether a client of Cutcher & Neale Investment Services Pty Limited or not, who acts or fails to act as a consequence of reliance upon the whole or any part of this publication. Cutcher & Neale Investment Services Pty Limited ABN 38 107 536 783 is a Corporate Authorised Representative of Cutcher & Neale Financial Services Pty Ltd ABN 22 160 682 879 AFSL 433814

 

Topics: CNIS, ASX, Dow Jones, Australian Market, international markets

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