By Andrew Quin

December 11, 2019 | TWD Invest

November 2019 in Review

Economic Developments


  • The Reserve Bank of Australia [RBA], held the Cash rate at a record low of 0.75% on 3 December. In commentary the RBA advised that the Australian economy had reached a ‘gentle turning point’, with improvement in the housing market, growth is expected to reach 3.00% by 2021. Nevertheless, the market expects interest rates to be at 0.25% by mid-2020. Australian inflation remains low at 1.70%, below the 2-3% RBA target. The next RBA meeting is 4 February 2020.

Source: RBA


  • The market continues to watch the probability that the RBA will eventually be forced to introduce negative interest rates and/or Quantitative Easing [QE]. The introduction of QE in other economies has generally been positive for the stock market.
  • Australian Retail sales figures were flat in October and Household consumption lifted just 0.1% in the September quarter, the worst result since December 2008, during the Global Financial Crises. Australia’s unemployment rate was stable at 5.2%, in September.
  • We think central banks are underestimating the impact on the economy of technological change and the deflationary pressures this will create. At the same time, the stock market is likely underestimating technological change opportunities and threats to existing companies. We have noted in the past the threat to existing companies in the banking sector and the opportunity of automation in the mining sector.
  • Since we noted the looming changes of electrification and automation in the mining sector this trend has accelerated. It has been reported that BHP will potentially introduce up to 500 autonomous trucks at its Australian open-cut operations, a tenfold increase on the company’s existing fleet at the Jimblebar mine in the Pilbara. Companies across the industry will move to introduce more automation and electrification in order to remain competitive. This move towards automation should increase margins in the sector, increase the viability of low-grade mines and ultimately decrease political influence of the mining industry, as employment in the sector is reduced.
  • The rapid introduction of new technologies will likely de disruptive and deflationary on the economy as costs are driven down, it is estimated that up to 40% of S&P500 companies will be made obsolete over the next 10 years. This highlights the importance of investors focusing on potential technological impacts on their investments.
  • Household services continue to see rapid employment growth, with business services employment continuing to improve. Changing technology is going to start to have a greater influence on the employment market in coming years.
  • Underlying inflation remains low, as shown in the chart below.

Source: RBA

Commodity Prices

  • The gold price [US$1500/oz.] was little changed over the past month, while the silver price [US$16.67/oz.] was slightly lower, in a relatively subdued market with a slight downside trend that has been seeing the gold sector on the ASX trade lower recently.
  • Nickel prices weakened over the past month following the lift in prices due to the Indonesian nickel export ban, trading down to US$13,416 from US$16,184/tonne at the start of the month.
  • WTI Crude oil is currently quoted at US$59.20/bbl up from US$57.24/bbl at the start of November. We continue to see conventional energy investments as at risk, as alternatives gain in both environmental support and price competitiveness. We foresee a major switch from fossil fuel energy production towards alternative energy production, particularly solar, over the next 20 years. Fossil fuel assets risk becoming stranded assets in some circumstances. We would suggest this is a primary reason for the recent listing of Saudi Aramco, officially the Saudi Arabian Oil Company. The case for utility-scale solar and wind power is growing, with the cost dropping to about US$40 per megawatt-hour, lower than the cost of building new power plants that burn natural gas and/or coal.

Source: RBA


Bond Markets:

The Australian 10-year bond yield reduced to 1.15% from 1.29% at the start of November. The 2-year yield is 0.74% and the 5-year yield is 0.76%.
We think the global bond markets are setting up for a prolonged deflationary period, primarily driven by technology pushing costs down.


  • The US 10-year bond yield is 1.84% down from 1.883% at the start of November. Despite the recent inversion of US bond yields, we do not anticipate a US recession, with the bond market acting similar to the early 1900s period of rapid technological change. We see public markets as likely undervaluing technological disrupting companies set to take over large parts of traditional industries over the next 20 years. Passive investors are currently likely underestimating the risks to traditional industry disruption.
  • The Federal Open Market Committee Next meets 10-11 December. The current Federal Funds rate is 1.50% to 1.75%. With the Fed likely to hold rates for a period, barring any unexpected changes in the US economy.
  • US Nonfarm payrolls surged by 266,000 in November [Consensus; 187,000]. The US unemployment rate ticked down to 3.5% from 3.6%, back to the 2019 low and matching the lowest jobless rate since 1969. The end of the GM strike boosted employment in motor vehicles and parts by 41,300, part of an overall 54,000 employment gain in manufacturing. Which if it continues will increase the probability of President Trump being re-elected in 2020.
  • US Third-quarter earnings are set to see a 2.4% drop from last year’s third quarter. The first and second quarter saw 0.4% declines in earnings from the same periods last year. The fourth quarter is looking like another tough quarter with analysts estimating a 1.1% fall in earnings from 2018.
  • The markets in the US are near record highs as investors anticipate an improved company earnings performance in 2020.
  • For the 19 countries that share the euro, the European Commission has cut its growth forecast to 1.1% for 2019 from the 1.2% is expected in July, 1.2% in 2020, and 2021 1.4%. Noting persisting uncertainties such as global trade conflicts, geopolitical tensions, and Brexit.
  • The German 10-year bond yield is -0.29% slightly lower than the -0.26% at the start of November.
  • Chinese November exports fell 1.1% from a year earlier, the fourth straight fall. Exports to the US were down 23%, the worst result since February and the twelfth monthly decline in a row, likely an impact of ongoing trade negotiations. Another round of US tariffs on Chinese goods is due on the 15 December, to impose a new round of tariffs on some US$156bn of Chinese exports.
  • China is targeting 6% GDP growth for 2020. China accounts for about 16% of global Gross Domestic Product.
  • The Chinese US trade negotiations are ongoing and not expected to be completed prior to the 2020 US Presidential election on 3 November.
  • Australian exports to China have recently exceeded 30% of total exports.

Market Movements

Australian Equities:

  • The ASX200 Index lifted 0.57% over the last 25 trading days. The ASX200 chart is shown below.

Source: Metastock


  • The ten best and worst percentage stock performers on the ASX200 over the last 25 trading days were CYBG PLC [CYB] 38.42%, OOH!MEDIA [OML] 37.81%, CATAPULT [CAT] 30.4 0% AUSTIN ENGINEERING [ANG] 27.77%, CALTEX [CTX] 26.04% BRAVURA [BVS] 22.38% andMEDICAL DEVELOPMENTS [MVP] 21.88%.
  • The poorest performing stocks were SARACEN MINERAL [SAR] -17.78%, LYNAS CORPORATION [LYC] -18%, BANK OF QUEENSLAND [BOQ] -18.23%, WHITEHAVEN COAL ORDINARY [WHC] -19.32%, AUSTRALIAN MINES LTD [AUZ]-20%, PILBARA MIN LTD ORDINARY [PLS] -20.28%, SMARTGRP [SIQ] -20.70%, SPEEDCAST [SDA] -26.80%, G8 EDUCATION [GEM] -27.62%, and ISENTIA [ISD] -35.52%.
  • The five best and worst percentage performing Sectors in the ASX 200 over the last 25 trading days were INFO TECHNOLOGY [XIJ] 8.72%, HEALTH CARE [XHJ] 6.32%, ENERGY [XEJ] 4.08%, CONSUMER STAPLES [XSJ] 3.20%, and S&P/ASX 200 RES [XJR] 2.63%. The poorest performing Sectors were EMERGING COMPANIES [XEC] -2.23%, UTILITIES [XUJ] -2.67%, FINANCIAL-X-A-REIT [XXJ] -4.54%, FINANCIALS [XFJ] -4.55%, and GOLD [XGD] -7.63%.

Global Equities:

  • The broad global equities index (MSCI ACWI) delivered a 1.2% return in November and a 16.34% one year change. The US S&P500 lifted 3.4% in November, and is up 21.9% over the past 12 months, the STOXX Europe 600 Index was up 0.48% over the past month, and up 17.92% over the last 12 months. The Shanghai stock index was off -1.76% over the past month and up 11.75% over the last 12 months.

Looking Ahead

  • We believe the public markets are underestimating the potential of technological disruption over the next 10-20 years and the impact this will have on traditional industries. This presents both threats and opportunities in investment markets.
  • We expect technological change to be a primary driver of deflationary pressures, with this combined with high debt levels likely to see interest rates remain at low levels.
  • The US election will be on 3 November 2020.
  • The market expects further cuts to Australian and US interest rates in 2020, and for the global economy to remain lacklustre. We think the Australian and US stock markets will maintain their positive outlook as US company earning lift from their weaker 2019 performance. We maintain our conservative positioning recommendation based primarily on technological disruption risk and slowing Chinese growth.

Words by Andrew Quin.