Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 344

Welcome to Firstlinks Edition 344

There's always more happening in money markets than most people realise, with significant implications for investors and borrowers. Like an iceberg with more under the surface than we see from above, the Reserve Bank of Australia (RBA) injects or withdraws billions of dollars into the financial system each week to manage liquidity. In the professional cash markets, the RBA is currently providing plenty of stimulus and banks are funding loans easily.

This lack of need to compete aggressively for deposits is one reason why bank cash accounts pay negligible returns and term deposits are not much better. Worse for people relying on these accounts for income, Governor Phillip Lowe has outlined the circumstances in which cash rates could go lower.

"If the unemployment rate were to be moving materially in the wrong direction and there was no further progress made towards the inflation target, the balance of arguments would tilt towards a further easing of monetary policy."

Lowe went on the explain the requirements for an Australian version of Quantitative Easing (QE), where he appeared to rule it out:

"The threshold for undertaking QE - that is, the RBA purchasing assets through balance sheet expansion - has not been reached in Australia and I do not expect it to be reached. So, it is not on our agenda at the moment."

However, Peter Sheahan, an institutional deposit broker at Curve Securities, told me that a form of QE is already underway. He points to the level of Government deposits held by the RBA (the purple bar in the chart below). It has been falling rapidly as Government agencies appear to be circulating money back out to the financial system as soon as possible and not holding deposits with the RBA. The amount on deposit has fallen a further $23 billion from $41 billion to $18 billion since 30 June 2019. Some banks believe there is already more liquidity in the system than ever before and it's one reason the RBA did not cut rates last week. It's "cash flow optimisation to stimulate activity."

Nobody has spent more time in Australian money markets than Tony Togher. He oversees the $60 billion cash and fixed interest portfolio at First Sentier Investors for both retail and institutional investors. In this interview, he explains the wide variety of securities in his funds, and how the market has changed fundamentally in the last decade. Cash is not just cash.

In a wide range of other important investment topics ...

Joe Magyer describes the value of letting your winners run, and anyone who sold out of a great growth story like CSL, Xero, Amazon or Magellan will know the pain of taking profits early.

Bank hybrids have become a massive sector in the 'reach for yield', especially for retirees replacing term deposits, and part of the return assumption depends on when a bank will repay this perpetual instrument. Fixed interest experts, Justin McCarthy on one side and Simon Fletcher and Charlie Callan on the other, disagree on a NAB hybrid which has seen significant price movement recently.

Fidelity International has released new research on the value of advice. Alva Devoy reports on the higher proportion of people who worry about their future when they do not seek advice, but most importantly, there is a link between financial and mental health.

The wide margin between low bond rates and the yield on high-quality non-residential property continues to drive flows, and Adrian Harrington shows the sectors attracting the most attention. Like residential property, the market is very strong.

The window for submissions to the Retirement Income Review recently closed, and Roger Cohen highlights the 'retirement gap' that punishes saving, and he offers an alternative.

Finally, Peter Cook believes low interest rates force a rethink of 'Total Return Investing', because below a certain income threshold, investors need to accept some level of capital volatility.

This week's White Paper from Magellan looks at the ways technology is changing modern medicine. No wonder we are living longer, and many companies are benefitting.

 

Graham Hand, Managing Editor

For a PDF version of this week’s newsletter articles, click here.

 


 

Leave a Comment:

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Supercharging the ‘4% rule’ to ensure a richer retirement

The creator of the 4% rule for retirement withdrawals, Bill Bengen, has written a new book outlining fresh strategies to outlive your money, including holding fewer stocks in early retirement before increasing allocations.

Latest Updates

Economy

The ‘priced out generation’ and what they should do about it

A fiery interview on housing exposed deep generational divides, sparking youth outrage and political backlash. As homeownership drifts out of reach, young Australians face a choice: fight the system - or redefine success.

Taxation

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

Superannuation

Meg on SMSFs: Ageing and its financial challenges

Ageing SMSF members can face issues funding their pension income as cash reserves dwindle. Potential solutions include involving adult children in contributions to secure future financial stability.

Economy

US earnings season was almost too good to be true

The second quarter US earnings season has wrapped up, with a record 82% of S&P 500 firms beating earnings estimates. As tailwinds fade, Q3 may reveal whether AI momentum can offset rising economic headwinds. 

Gold

Does gold still deserve a place in a diversified portfolio?

9,000 years and no devaluations later, gold is the world’s most enduring store of value. It remains attractive as the value of several paper currencies, including the US dollar, are threatened by deficits and rising debt.

Shares

Checking in on the equity market's silent engine

Consumer spending directly impacts corporate earnings, sector performance and market sentiment. The latest data from different economies uncover risks and pockets of opportunity for investors.

Fixed interest

6 key themes driving bond markets

The Fed could soon be prompted to join other central banks in cutting interest rates. This would have ripple effects across global fixed income markets and provide an especially attractive backdrop for emerging market bonds.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.