Digital Finance Analytics (DFA) Blog – "Intelligent Insight"

Into The Storm: What Next?

This is my weekly market update, starting in the US, crossing to Europe, then Asia and ending in Australia plus commodities and crypto.

An unusually strong solar storm hit the Earth overnight producing northern lights in the US and Europe and southern lights across Australia, including Queensland. Bright auroras were visible at unusually low latitudes. The G5 geomagnetic conditions could potentially disrupt power and communications with warnings to governments and critical infrastructure operators about the potential impacts on infrastructure and essential services.

This reminded me that things can be unpredictable, and markets risk surprises in the weeks and months ahead, as Central Banks, who created the massive inflation storm by their own actions, try to reverse the effects through higher for longer interest rates. Meantime Government debt continues to rise, together with the costs of debt servicing, and many ordinary households are caught in the crossfire. Yet financial markets are still hopeful.

On Friday shares in New York were modestly higher, with techs somewhat lagging. But all three indexes were up for the week with the blue-chip Dow nabbing its largest Friday-to-Friday percentage advance since mid-December. The benchmark S&P 500 index is up over 9% for the year, up near its late-March record high, following a 5% pullback that occurred last month.

The question of how independently will other Central Banks move their base rates ahead of the FED comes more into view. More broadly is the U.S. exceptionalism trade fading?

And what does the demise of Perpetual, like the fall of AMP before it, also tells us about the changing nature of Australia’s financial services sector: the growing scale and power of the superannuation sector; the rise and rise of passive investing and private capital; and the global struggle to make the listed funds management model work?

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The “Tapping Super For Home Purchase” Conundrum!

Housing affordability is shot, as we have been discussing, thanks to demand stoked by high migration, higher lending multiples as the financial system was deregulation, and higher interest rates mirroring the RBA’s battel to tame inflation. As a result first time buyers are delaying their purchase by several years, and more borrowers are leveraged up to the gills, despite first home grant schemes, and shared equity schemes, which as the Productivity Commission showed did help a few get into the market, but lifted prices for everyone else, so did not help structurally.

Australians are already among the highest carriers of household debt in the world. In fact, according to Domain’s 2024 First Home Buyer Report, an entry-price home in Melbourne costs $678,000. In Sydney, it jumps to $927,250. Looking outside the two major cities reduces the cost to $545,000. To be lucky enough to secure any of these options, a 20 per cent deposit will set you back between $109,000 and $185,000.

So where do prospective buyers get that sort of cash? Well some might be able to get help from the Family Bank, as I showed recently, the average is more than $106,000 now, great if you have wealthy parents. Others may be able to save, but it’s a long road, and whilst interest rates are higher than they have been for some time on deposits, it will take years, and longer still if rates are cut later. Then of course there is the old chestnut, use accumulated super.

This week we got a draft report from the parliamentary committee chaired by prominent superannuation critic Andrew Bragg which has upped the ante on the Coalition’s super for housing policy, suggesting first home buyers should be able to withdraw all their retirement savings to buy a house or use it as collateral to help borrow.

My view is that this is actually a proxy political war on the purpose and nature of superannuation, rather than a real honest discussion about how to fix the broken property market. It is in essence a mixture of misdirection – look over there, not here, and avoid the more critical issues of migration control and increased and better-quality supply of affordable housing. Or in other words, it’s a case of fiddling while Rome burns, again.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

As More Households Are Crushed, Bankers Talk Their Own Book On Easing Mortgage Lending Rules!

Guess what, Bankers are looking at ways to ease lending standards to pump the market some more, as bank margins are under pressure at a time when lending growth is already strong, and more households are already in financial difficulty.

The value of new housing loans have risen by 17.9% since March 2023, to $27.6 billion dollars and were up 3.1% in March, according to the ABS.

The ABS also released their latest estimates of real living costs for households, they said Employee households recorded the largest annual rise in living costs of all household types with a rise of 6.5 per cent,

No surprise then that the DFA surveys for April showed a further rise in mortgage stress, to more than half of mortgaged borrowers, with many first-time borrowers and young growing families most exposed. In addition, rental stress remains very high, underscoring the pressures created by bad policy over many years, making housing unaffordable. On my live show coming up on Tuesday, we will look at this is more detail, and do a further post code deep dive.

AMP chief economist Shane Oliver says there might be scope to reduce buffers for people refinancing — the banks already have some room to do that — but cautions against significant changes to lending laws.

“We’ve gone through a very difficult time in the economy in terms of the massive rise in interest rates, and we’ve come through — so far anyway — at a relatively low level of arrears,” he notes.

“That partly reflects the responsible lending that the banks have been undertaking over the last few years. If we had to take a dramatic easing in lending standards, and the rules around that, the risk is that the next cycle could be far worse.”

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Are Central Bankers Becoming Political Animals?

This is our latest weekly market update.

Another wild week on the markets, driven by conflicting data, and a reactive FED, who has effectively given up on forward guidance, and who does not know where rates will go. But despite Powell’s protests to the contrary, some are suggesting Central Bankers are being swayed by political considerations from driving rates higher to quash inflation.

Apart from more strong big tech results this week, two events shaped the week. It started with fears of higher rates and inflation, driven by hot economic data, but turned after the FED held rates, and ruled out rate hikes, waiting for more data. Stubbornly high readings on inflation this year pushed Federal Reserve Chair Jerome Powell to say on Wednesday that it will likely take “longer than previously expected” to get enough confidence about inflation to cut interest rates.

But then in a “bad news is good news” swing, the Friday jobs report came is softer than expected in April, a sign that persistently high interest rates may be starting to take a bigger toll on the world’s largest economy.

In Australia the benchmark S&P/ASX 200 rose 0.55 per cent, to 7629 points to finish the week 0.7 per cent higher. The central bank on Tuesday is widely expected to keep the cash rate at a 12-year high of 4.35 per cent, but it may also reintroduce a soft tightening bias following last week’s hotter-than-expected inflation report.

But aT the end of another volatile and rudderless week, markets remain on edge, waiting for the next big shiny bit of news – of course big players benefit from these changes in sentiment, but ordinary investors will be perhaps rightly more cautious. Expect more rapid changes in trajectory in the weeks ahead, as data will continue to confuse. Meantime, the credibility of Central Bankers continues in my eyes to diminish, even as more ordinary households are being crushed. And more on that subject in my live stream on Tuesday.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Don’t Believe The Bankers: More People Are Using Cash!

Contrary to the bankers claiming digital payments are replacing cash, yet more evidence is showing that use of cash is on the RISE! We look at data from New Zealand based on a recent survey as the Reserve Bank there announces pilots to make access to cash easier.

The trend of rising cash use was in fact confirmed recently by the RBA too, though their surveys are just not up to the New Zealand standard, and of course using cash more is also rising in the UK.

Not only is the ongoing use of cash a human right, a protection of freedom, and cheaper than other payment means, but it is also proving to assist households with their budgetting. Do not believe the bankers’ BS…

RBNZ Short: Why Access To Cash Is Essential For Social Cohesion Short: https://youtube.com/shorts/d32BqMmfwUc

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/