Weekly Reports | Jan 17 2020
Weekly Broker Wrap: market outlook; Australian economy; housing; property; JeansWest; wealth; gaming; and US census.
-Australian bushfires likely to trigger temporary rise in inflation, impact on GDP
-Modest improvement in housing conditions likely over 2020
-JeansWest warning highlights significant pressures for retail malls
-Increase in adviser churn positive for Netwealth, HUB24
-WA TAB on the market, potential for global competitor to enter Oz
By Eva Brocklehurst
Baillieu predicts equity market returns in 2020 will be modestly positive and international markets should continue with their recent outperformance. The US S&P 500 rallied strongly in 2019 to new record highs and is expected to rally again in 2020, albeit at a slower pace.
A rebound in global growth should drive a robust earnings recovery, the broker assesses, particularly in ex-US international markets. The US presidential election will also be a market driver as will lower geopolitical risks.
Australia's economy is likely to muddle through, meanwhile, and underperform global peers. Baillieu also notes elevated equity valuations in both Australia and the US.
It remains too early to assess the economic impact of Australia's bushfires, given much of it will be indirect, via lost working days in construction and lower retail expenditure. UBS believes sectors that are most likely to be affected will be agriculture, tourism, retail and construction.
The broker notes the ANZ-Roy Morgan consumer confidence index has already fallen to a four-year low in early January, a negative sign for weak retail sales. Elsewhere, UBS assesses a -10% reduction in tourism for impacted regions.
Citi agrees there will be initial supply shock with a loss of production on the back of damage to businesses, infrastructure and residential properties, which means consumption and investment spending will be initially delayed but will recover as rebuilding gets underway.
Given the indicative cost from the government of the bushfire response is $500m, against an expected budget surplus of $5bn, it appears likely the surplus can be maintained.
The broker expects the crisis will impact on GDP in the fourth quarter of 2019 and first quarter of 2020 by as much as up to -25 percentage points. Moreover, higher headline inflation is likely although much of this will be trimmed out of core measures.
Citi estimates an equivalent reduction in GDP over the two quarters and agrees there will be a temporary impact on inflation. Both brokers expect the Reserve Bank to cut official rates by -25 basis points in February, ahead of downgrading the economic outlook.