Markets Overview
- ASX SPI 200 futures down 0.8% to 7,876.00
- Dow Average down 0.9% to 40,287.53
- Aussie down 0.2% to 0.6692 per US$
- US 10-year yield rose 3.7bps to 4.2389%
- Australia 3-year bond yield rose 2 bps to 4.00%
- Australia 10-year bond yield rose 4.6 bps to 4.28%
- Gold spot down 1.8% to $2,400.83
- Brent futures down 2.9% to $82.63/bbl
Economic Events
The dollar slipped in early Asian trading after Joe Biden ended his reelection campaign and endorsed Vice President Kamala Harris. The region’s stocks are set for a mixed start.
A Bloomberg gauge of the US currency’s strength fell 0.2% on Monday after the US President bowed to pressure from the Democrats and pulled out of the November election race, while the Mexican peso climbed. US stock futures showed small gains after the S&P 500 fell on Friday. Australian bonds fell.
US longer-maturity bond futures rose more than their shorter-dated equivalents, pointing to a modest reversal of the so-called curve steepener trade associated with a victory for Donald Trump. In Asia, equity futures point to a mixed open after contracts in Australia and Japan fell in line with US stocks, while those for Hong Kong shares were steady.
Investors have mulled for weeks a greater prospect Trump will win the November election following Biden’s weak debate performance, only for bets on a Trump win to accelerate last week following an assassination attempt on the former president. The dollar rose for the first time in three weeks, while emerging market assets suffered amid fears of higher trade tariffs, increased US-China tensions and looser US fiscal policy.
The question for investors is whether to stick with such trades now that Biden has dropped his bid for reelection. Markets may be jumpy as traders wait to see if Harris secures her party’s nomination and weigh if she can then gather enough momentum to challenge Trump’s lead in the polls.
Other News
The number of Australians tapping the government’s reverse mortgage-style product to help fund their retirements rose almost 40% in the past year as calls increase for retirees to monetize the A$1.3 trillion ($870 billion) they have tied up in property.
The nation’s Home Equity Access Scheme was used by 13,479 people in the year to June, more than double the amount who accessed it in the corresponding period two years earlier, data from Australia’s Department of Social Services shows. Under the program, people who have reached the pension age of 67 can borrow against the equity in their property and take out a government loan.
The data comes as a report released Monday by Australia’s Actuaries Institute recommends policy changes to encourage even more people to utilize the value stored in the family home, or to downsize to a smaller property, to help fund a shortfall in their retirement savings.
“There is a need for people to access capital from somewhere and in the home is obviously a great place to start,” the report’s author Andrew Boal said in an interview.
Australia’s A$3.9 trillion pension system is the envy of some nations and is the fastest-growing retirement saving pool in the world. Still, 60% of the three million people who are set to retire in the next decade will have A$250,000 or less in their pension accounts, the report said.
The low amount is primarily because when the system began in 1992, just 3% of wages was contributed to compulsory pensions. That has gradually risen to 11.5%, and will top out at 12% next year. Balances will to improve over the next 20 years as more people save at the higher rate, Boal said.
Most reverse mortgage products allow people to tap around 20% of the equity in their home.
“If you release 20% of that A$1.3 trillion, we’re looking at a potential market here of A$260 to A$300 billion that people can use to improve their standard of living in retirement,” said Boal, who chairs the Actuaries Institute’s retirement strategy group and is a partner at Deloitte. Many people weren’t aware of the equity release program, or didn’t understand their options, he said.
“The US and the UK markets have much more vibrant home-equity markets than we do here in Australia,” Boal said. “For example, we might have about 1% of the available equity being accessed, whereas some of those overseas markets, they’re running more at 3%, 4% or 5%.”
Boal’s report suggests policy changes, including relaxing the Government Age Pension assets test for people who use a home equity release program. It also recommends removing stamp duty — or tax paid when a property is bought — for people over 55 who downsize their home.
Australian pension funds need to do more to help retirees turn their savings into income, or to educate them about how long their balances might last, regulators said last year.
While Australia’s retirement system is strong relative to others globally, there was a tendency for people to “over-consume housing” as they get older, Rich Nuzum, Mercer’s executive director, investments and global chief investment strategist, said.
“You may have built that house when you had two or three children, they’ve moved away, maybe they come back to visit, but you don’t need those additional bedrooms all the time,” Nuzum said in an interview ahead of the firm’s Global Investment Forum in Melbourne this week.
The pensions industry has a role to play in helping people to understand their housing options, including reverse mortgages, Nuzum said.
Reverse mortgage-style loans are generally recovered when the secured property is sold or from the person’s estate.
(Bloomberg)
