NEWS + VIEWS – 09/05/2025
MARKETS
Share markets have been positive this week as investors monitored the latest updates on US trade negotiations with Treasury Secretary Scott Bessent and top trade official Jamieson Greer due to meet with their Chinese counterparts this weekend. Meanwhile, the Federal Reserve held interest rates steady with Fed Chair Jerome Powell making it clear that he will not be rushed into lowering borrowing costs until there is more certainty on the direction of trade policy.
As investors, we are all looking for some path out of the uncertainty and volatility of recent times. Unfortunately, as we have said many times before, no-one knows what will happen next, so the best course of action is to rely on your asset allocation and invest in strong companies.
Howard Marks from Oaktree Capital Management wrote recently about why the impacts of events on economies and share markets are so unpredictable. ‘The problem is that in the real world, and especially in economics, there are second and third order consequences that must be considered.’ When an event occurs, there is a reaction by people to the event, then a reaction to the initial reaction. Marks referred to an amusing quote by physicist Richard Feynman. ‘Imagine how much harder physics would be if electrons had feelings.’ He added that ‘economies and markets are made up almost entirely of people, and people do have feelings, rendering reactions unpredictable.’
US RECESSION? GDP DOWN BUT EMPLOYMENT UP
Investors globally are focussing on whether the US will dip into recession as a result of the Trump tariff announcements. While many economists are predicting a recession, it is unlikely that it is currently built into share prices.
According to the advance estimate released by the US Bureau of Economic Analysis, first quarter GDP growth came in at -0.3% last week (see chart below). However, this reflected front ordering of imports to avoid tariffs and a cut in government spending. On the other hand, in an indicator of economic strength, 177,000 jobs were added in the US in April (compared with expectations of 135,000). The Purchasing Managers Index was down to 50.2 in April but, as it is above 50, the reading still suggests growth in the US. The Conference Board’s Leading Economic Index was showing a downturn by the end of March but not in recessionary territory.
The US economy is probably weakening and at this stage, a recession remains a possibility.
COMPANY NEWS
Woodside Energy (WDS) announced the go ahead for a $US17 billion Louisiana LNG development. It is expected to come on stream in 2029 and double the size of the company’s LNG production. WDS will enter the ‘big league’ in that it will account for more than 5% of global LNG production and would place it behind only Shell in volumes produced.
CEO Meg O’Neill referred to the relative ease of obtaining approval compared to the uncertain Australian regulatory environment. This follows the announcements of BHP and Rio Tinto’s (RIO) huge Resolution copper development in the US and James Hardie’s (JHX) $14 billion takeover of US building materials Azek. JHX is also moving its primary share market listing to New York. The question must be asked whether the increasingly (and uncertain) regulatory environment and industrial relations are pushing investment capital overseas.
Westpac (WBC) announced a -1% fall in net profit for the six months to March to $3.32 billion, missing expectations, and warned that shifting global trade policies may raise funding costs. WBC’s net interest margin (NIM) - the difference between interest earned from lending and paid for deposits - fell 0.01% from last year to 1.88%.
NAB posted a better-than-expected 1% rise in first-half cash earnings to $3.58 billion, helped by disciplined cost management and robust business lending. NAB’s NIM was down 0.02% from a year ago to 1.70%, due to higher funding costs.
ANZ reported a flat first-half cash profit of $3.57 billion compared with the same period last year. Revenue increased by 6.3% to $11 billion, following last year’s acquisition of Suncorp Bank. ANZ’s NIM was also flat at 1.56%.
ANOTHER MINIMUM PENSION REMINDER
We reminded clients in the last edition of the News & Views about the need to draw your minimum pension by 30 June 2025 if in pension phase.
If the minimum pension requirement is not met, the account-based pension (ABP) may cease to be exempt from tax from the start of that financial year. Super pension accounts are taxed at 0% whereas accumulation accounts are taxed at 15%. As an example, assuming a pension account of say $500,000 earned 5% income for the year, the $25,000 income would not be taxed. If the minimum pension is not drawn, that income would be taxed $3,750.
If there is more than one account in super, failure to take the minimum pension may mean the accounts are ‘merged’, which could have an impact on the payment of death benefits to non-dependents.
Payments from the ABP where the pension standards have failed will be treated as lump sum withdrawals. This potentially increases the complexity in the super fund’s accounting. The accountant would need to value each pension account at the time each payment is made. That could incur significant administrative costs. Similarly, there could be ‘messy’ Transfer Balance Cap (the amount you have converted to pension phase) recalculations required by the accountant again resulting in additional costs.
To recommence a pension, an account must be commuted to accumulation phase, then the pension restarted. If the failure of the pension was not detected until months into the next financial year, the tax losses may also be extended for the period elapsed in that financial year. Again, the accountant would need to calculate accounts at the time possibly resulting in additional effort.
Meeting your minimum pension requirement is very important. Failing to do so can result in financial loss as well as significant effort in ‘rectifying’ the situation. If you are unsure whether you have or will have taken your minimum pension amount this financial year, you should discuss with your accountant and/or adviser.
Gerard O’Shaughnessy
P 0423 771 330
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