May 2020
Welcome to our May newsletter. After an extraordinary month of social and economic hibernation, there are positive signs that some of the restrictions on our everyday lives will soon be loosened somewhat. This is welcome news for households, businesses and our economy.
Data released in April provided an early insight into the impact of the coronavirus on the Australian economy. Inflation rose by an unexpected 0.3 per cent in the March quarter, lifting the annual rate from 1.8 per cent to 2.2 per cent. The biggest increases were food, alcohol and tobacco and health. The biggest falls were petrol, travel and accommodation.
Retail sales jumped a record 8.2 per cent in March as consumers stocked up on food and essentials ahead of the shutdown. New home sales fell 23.2 per cent in March while new vehicle sales were down 9.1 per cent in the year to March as Australians reassessed their finances. But consumer confidence rebounded in April, with the ANZ/Roy Morgan consumer confidence index lifting to 85 points, up from record lows of 65 points in March. National petrol prices fell to an average of 100.6c a litre in April, the lowest in 15 years. This follows a further 22 per cent drop in global crude oil prices in April as a result of a glut in supply.
Business confidence was also at record lows in March, with the NAB index falling from -2.4 points to -65.6 points. Unemployment rose slightly to 5.2 per cent in March but Reserve Bank Governor, Philip Lowe said in a speech that he expects the rate to climb to 10 per cent in the June quarter and remain above 6 per cent for the next few years. He also expects inflation will fall significantly in the June quarter as our economy contracts but said: “We can be confident that our economy will bounce back”. The Aussie dollar rose over 6 per cent in April to over 65 US cents, perhaps due to Australia’s success to date in dealing with the coronavirus.
Keeping the economy moving
It’s not just the Government that has swung into action. Behind the scenes, the Reserve Bank of Australia (RBA) has also pulled out all stops to keep the economy moving.
RBA monetary policy is the yin to the Government’s fiscal policy yang. During the current crisis it’s designed to complement, and to some degree pay for Government spending which already exceeds $320 billion.
On March 19, RBA Governor Philip Lowe announced a package of monetary support policies to “support jobs, incomes and businesses”. These policies included maintaining the cash rate at 0.25 per cent, the creation of a $90 billion funding facility to support business lending, and the purchasing of government bonds.
Rates as low as they will go
Australia began 2020 with the official cash rate at what was an historic low of 0.75 per cent. This left little wiggle room for the RBA to provide further economic stimulus the traditional way, by pulling the interest rate lever.After two rate cuts in March, the cash rate is currently at a new all-time low of 0.25 per cent. The RBA has promised to keep it there until “progress has been made towards full employment and it is confident that inflation will be sustainably within the 2-3 per cent target range”. With unemployment expected to hit double digits we could be waiting for some time, although inflation jumped to 2.2 per cent in March. i
Source: RBA
Increased funding for SMEs
While low interest rates traditionally encourage individuals and businesses to borrow and spend, there’s less inclination to do either while the Coronavirus shutdown continues.The prospect of some business failures and loan defaults is also a disincentive for the banks to lend. So the RBA has provided a three-year funding facility for the banks at a low fixed rate of 0.25 per cent to reduce their funding costs and encourage borrowers.
The banks will be able to access this funding if they increase lending to business, especially small and medium-sized businesses which have been especially hard hit by the shutdowns.
Bond buying bonanza
The cash rate is not the only interest rate the RBA monitors. In its March statement it also set a target for the yield on 3-year Australian Government bonds of around 0.25 per cent, in line with the cash rate.This was a signal to the market that the central bank is serious about keeping rates lower for longer. At the time 3-year Government bond yields were around 0.85 per cent.
The RBA set out to achieve this target by buying Government bonds in the secondary market. This is a monetary policy lever it has never used before, known as quantitative easing.
If you haven’t heard of quantitative easing - QE for short – or you have but you can’t get your head around it, you’re not alone.
How does quantitative easing work?
QE is where central banks print money to buy government bonds. A government bond is a low risk investment product whereby investors lend money to the government for a set period at a predetermined rate of return which is referred to as the yield or interest rate.The RBA’s bond buying also raises the price of bonds and lowers their yields, which in turn lowers funding costs for borrowers and allows them to cut interest rates on home loans and business loans. Coupled with low interest rates, banks are better off lending money than holding onto it.
To date, the RBA has spent more than $36 billion in bond purchases and 3-year Government bond yields have dropped to around 0.25 per cent.ii So, by spending huge quantities of cash the RBA eased monetary policy, which is a roundabout way of saying it used quantitative easing.
What does it mean for me?
The prospect of low interest rates for the next few years creates opportunities and dilemmas for borrowers and investors.As banks pass on some or all the cuts in official interest rates to their home loan customers, first home buyers are well-placed to secure a good deal. Existing homeowners might also take the opportunity to refinance.
According to Canstar, by shifting from the average variable interest rate of 3.52 per cent to the lowest rate on offer of 2.39 per cent, a borrower on a 30-year, $400,000 loan could save more than $240 a month or more than $87,400 over the life of the loan.iii
Retirees and others seeking income from their investments are not so lucky, but there are some good rates on offer if you are prepared to shop around. The best 12-month term deposit rates and bonus savings account rates are as high as 2 per cent.iv, v
These are undoubtedly difficult times, but the decisions you make now could put you in a good position when markets recover. So give us a call to discuss your financial situation.
i https://www.rba.gov.au/
ii https://www.afr.com/markets/debt-markets/rba-the-new-major-bond-market-player-20200414-p54jjz
iii https://www.canstar.com.au/home-loans/coronavirus-refinance/?utm_source=campaign_monitor&utm_campaign=Gold_AU_-_EDM_-_15%2F04%2F2020_-_home_loans&utm_medium=campaign_monitor&utm_term=home_loans&utm_content=Is_now_a_good_time_to_refiance
iv https://www.finder.com.au/term-deposits
v https://www.canstar.com.au/savings-accounts/anz-nab-86400-savings-rate-changes-april-2020/
Time to reassess your financial priorities?
Whether you are spending less by necessity or because you are living more simply at home, this could be a good time to reassess your spending and review your household budget.
Our spending habits have changed
Even though we are spending less in lockdown overall, we have also changed what we spend our money on. We are spending more on groceries, food delivery, streaming services, alcohol, pet care and (home) office supplies. But a lot less on gyms, travel, cafes and restaurants.iWhat’s more, many of us are discovering we can happily do without many of the treats we used to think were essential. So, if we can avoid slipping back into our old spending habits, we could be in a much better financial position when the pandemic has passed.
By doing some legwork to find the best deals on offer, it may be possible to reduce your outgoings on essentials such as utilities, groceries, petrol, general insurance and housing. However, the big savings usually come from eliminating – or at least limiting – non-essential goods and services.
Eating and drinking
One spending behaviour that has shifted significantly during lockdown is dining out. A 2019 survey revealed Australians spent $2,704 a year on dining out, on average, and $1,612 on alcohol.ii We are now cooking at home a lot more and we seem to be enjoying it, with households now baking their own bread and embracing the slow cooker.Once we are able to go back to eating out and visiting pubs and bars we can fatten our wallets by reducing the number of times we eat out, inviting friends over for a coffee, beer or meal rather than meeting them at a café, pub or restaurant.
When it comes to cooking at home, where you purchase your food can have a big impact on your grocery bill. CHOICE found shopping at Aldi can be up to 50 per cent cheaper than other supermarkets.iii
We are also tending to do a larger shop less frequently. Meal planning and doing a shopping list is one way of avoiding the spontaneous purchases that lead to food wastage. Given that the average Australian household throws away $3,500 worth of food each year these are worthwhile changes that will help our hip pockets on an ongoing basis. iv
Exercise
Another big shift that has come from the lockdowns has been in the way we exercise. When the walls closed in, we took to our bike paths and parks and went for a walk or run.So maybe it’s worth rethinking the expensive gym membership and keeping up our Corona exercise plans - particularly if you’re one of the 1.5 million Australians who have a gym membership but rarely use it.v
Travel
Prior to the crisis, heading off on holiday usually meant jumping on a plane. Back in 2018, 6.3 million Australians were holidaying overseas and spending an average of $4,750 per person - or $19,000 for a family of four.vi Of course, it’s unlikely you’ll be engaging in any international travel for a while. But after borders reopen, you may wish to holiday in Australia anyway.Not only is holidaying locally likely to be less expensive, but it could also mean your dollars flow into one of the tourism-dependent regions which have been so badly hit by last summer’s bushfires and now the Coronavirus shutdown.
Thinking to the future
During difficult times such as these, a sound budget based on your financial priorities will help you continue to work towards your long-term goals.Depending on your financial situation you may even wish to go against the trend and look for ways to get your money working for you. This could include making personal contributions to your superannuation after the recent market falls, or investing outside super, to capture the upswing when the market bounces back, as it always does.
If you would like to set some new financial priorities and discuss your situation, give us a call.
i https://www.smh.com.au/business/the-economy/stimulus-payments-arrest-spending-slump-real-time-data-shows-20200408-p54ida.html/
ii https://thenewdaily.com.au/finance/consumer/2019/09/23/food-spend-australia-budget/
iii https://www.choice.com.au/shopping/everyday-shopping/supermarkets/articles/cheapest-groceries-australia
iv https://www.samedayrubbishremoval.com.au/War-On-Waste-Statistics.php
v https://www.news.com.au/finance/money/costs/lazy-aussies-wasting-18-billion-on-unused-gym-memberships/news-story/6243cf35a8424a8dfa212ea17c1a0208
vi https://www.budgetdirect.com.au/travel-insurance/research/average-holiday-cost-statistics-2019.html
How to make the perfect cup of tea in just 3 easy steps
It’s day 82 of home isolation. You’ve forgotten the feel of pants
that don’t have an elastic waist, and every room now looks the same.
At least you still have one routine to cling to from BC (Before
Corona) – your morning cuppa. Old faithful.
You drop in the tea bag. You hit boil on the kettle. Your mind drifts for a bit, and you can’t remember if you did in fact, boil the kettle. You hit boil again, just in case. You fill your mug and then jiggle the bag up and down until it’s the colour you like (or perhaps you follow an X number of dunks rule, or even a ‘spin the teapot X times’). You add just the right amount of milk.
There’s nothing truer than the old saying ‘It’s not my cup of tea’. We all have our preferences which result in a brew we love over all others.
That said, well, I’m not saying you’re making your tea the wrong way…but if you make tea like the tired, stretch pants wearing person alluded to above, then there are a few easy tweaks you could make to exponentially improve your favourite brew.
And excellent tea is the only way to have tea, in my opinion.
Step 1: Use real tea.
There is a word in the English language that is the opposite of the ‘Cream of Crop’, and thy name is Fannings.
Tea bags are made with fannings (you can Google it), which is basically the lower leaves of the plant plus a bunch of sticks and dirt, which is then ground up into dust and auctioned off to companies like Dilmah, Twinnings, Lipton, etc. Just tear open a tea bag and have a look.
No matter what sort of tea you like, look for loose leaf as a general rule. You’ll have to make a special shopping trip for it, or order it online. What’s available at any supermarket, no matter how big and colourful the hot beverage aisle is, is no good. There are some really beautiful specialty tea stores around Brisbane, and most of them allow online ordering as well which is perfect in the current climate.
Enviro Tip: ditching tea bags for loose leaf is a boon for the environment. Producing the bleached bag (which also isn’t great for you), and the tag isn’t good for the environment, and neither is chucking it in the bin. With loose leaf tea – you can just go turf the leaves in the compost heap or over the neighbour’s fence. Even if you do put it in the bin, it’s still better than putting it in the bin inside a tea bag.
Step 2: Tip out the water that’s in your kettle right now (into a
pot plant so it’s not wasted). Put the kettle under the tap, and pour in new
water. Boil. ONCE.
This is the simplest step you can do for good tea. Please don't just fill up the kettle and keep pressing boil whenever you want another tea throughout the day.
Why? Because it’s the oxygen in the water that infuses the tea. Boiling removes oxygen. Boil the heck out of it and there will be none left. Ever made a tea and you go to get the bag out and there is just some brown stuff pooled on the bottom of the cup and the rest of the water in the cup is clear?
Enviro tip: boiling a smaller amount of water takes less time, and hence saves you on electricity. You can tip any excess water (once it’s cold) into your green-babies.
Step 3: Just follow the instructions on your tea. That's it.
Like any recipe, don't go thinking that you can substitute, say,
coconut for sugar, and beetroot for butter (this is something my mother does
and I’m sorry mum, but your ‘healthy’ muffins are bloody terrible).
If it says brew for 4 minutes – do it. And make sure you time it.
Other hot tea tips (see what I did there?):
- Use a timer. Over brewing is the same as cooking that cake for an
extra hour; Under brewing is akin to serving a watery curry before it’s had
time to thicken.
- If you want a weaker tea, use less tea. Brew for the recommended
amount of time.
- If you want a stronger tea, use more tea. Brew for the recommended
amount of time.
- Use a strainer that has plenty of holes big enough for the water
to get in there and infuse that great tea you’ve just bought. I’ve seen lots of
strainers that have holes so fine that water has to fight to get in. If you’re
using nice healthy tea leaves, you can use a strainer with fairly big holes.
- Tea pots are gorgeous. Buying tip – ensure there is a strainer
inside, they don’t all have one. You can also buy strainers that fit straight
into your mug – perfect for tea for one. You can usually buy these from tea
stores.
- Put whatever type and amount of milk you like in your tea.
Generally, you only put milk in black tea. But I know plenty of people
(weirdos) who like milk in their herbal brew.
Making tea is just like any recipe; there is chemistry to it and thing falls apart if the right things aren’t done with the right things, for the right amount of time.
In closing, tea is a very personal experience and everyone enjoys
it a different way. You should always make it however you enjoy it best. But I
do hope that some people find an improved cup of tea using the above tips,
because a perfect cup of tea really is the nectar of the gods (that, and red
wine, obviously).
Kerrie Englart
(Photo by Kowit Phothisan on Unsplash)
Stephen Degiovanni, Olivia Maragna and Cameron Harris are authorised representatives of Aspire Retire Pty Ltd ABN 61 104 563 733.
Level 6 345 Ann Street Brisbane QLD 4000. General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.