The Fiscal Cliff, RBA Confidence and Vaccines
Yesterday was a significant day for Australian equities for three reasons:
- Removal of the fiscal cliff: The Federal Government extended its JobKeeper and JobSeeker programs at a cost of A$20.4 billion, or ~1% of GDP. This removes fiscal cliff fears, lifting confidence.
- Reserve Bank of Australia (RBA) Governor Philip Lowe’s confidence-building speech: Governor Lowe highlighted Australia’s strong relative performance – on both health and economic metrics – and strong relative fiscal position. He signalled a further large rise in the RBA’s balance sheet, already up 5.8% of GDP, and openness to added policy support if needed.
- Positive progress on a vaccine(s): Positive efficacy and safety results were reported for three of the over 20 vaccines for COVID-19 currently in advanced human testing. In our view, the likelihood of a positive vaccine result by early next year is relatively high.
These developments add to our bullish outlook for the Australian equity market, and we lift our 12-month ASX 200 index target from 6500 to 6750. The market should be driven by a V-shaped economic recovery, driving a strong earnings recovery, and extreme liquidity and policy support.
Download the Full Report below for the Twelve stocks set to benefit from low rates in a V-shaped recovery.
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