Martin North – Page 106 – Digital Finance Analytics (DFA) Blog

Are We There Yet?

A remarkable division has emerged between those calling we have passed the bottom in the current stock market cycle, and those who say we are right in the middle of a bear market rally which will peter out before a further, and significantly deeper fall ahead.

Why? Because on one hand recent results from many stocks have been pretty good, (though future performance is not guaranteed) while inflation some are thinking has peaked. Yet on the other hand, Central Banks are still lifting rates, and consumer confidence is tanking while home prices are easing. And inflation is still way over target.

So, who will be proved more right? In this week’s market review we will start in the US, go across to Europe and Asia and end in Australia, as well as touching on metals, oil and crypto.

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US stocks finished the week on solid footing, with traders assessing whether an inflation slowdown could soon make the Federal Reserve reduce the pace of its most-aggressive tightening campaign in decades and prevent a hard landing. Defying the crowd of sceptics who dubbed the rebound a bear-market rally, short-covering or unwinding of hedges, the S&P 500 notched its fourth straight week of gains — the longest winning run since November — with big tech leading gains on Friday.

The gauge has recouped half of its losses from January through June, topping the so-called 50 per cent Fibonacci retracement level. It’s now sitting about 1.5 per cent below its 200-day average — a threshold crossed by the Russell 2000 gauge of small caps.

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Payroll Jobs Are Down…

Latest from the ABS shows jobs are down based on the payroll data. Could this be an early indicator, or simply data noise thanks to winter holidays and illness across the community? Interesting there were significant falls in construction and real estate sectors. Wonder why?

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Annual NZ House Prices Fall For The First Time Since 2011!

The REINZ released their July 2022 data and it tells a continuing story of a weaker market as activity and prices continue to ease and New Zealand house prices falling in July with the median price recording its first annual fall since 2011. The seasonally adjusted median nationwide house value in July fell 2.8% compared with the previous month and was down 1.6% year-on-year, according to REINZ.

The unadjusted median house price was down 1.8% on year. “While the median property price is showing an annual decrease, affordability remains an obstacle for many — which is now being driven by rising interest rates, inflation and tighter lending criteria,” said Jen Baird, chief executive at REINZ, in a news release.

House prices in New Zealand jumped more than 40% in the two years to November 2021. However, a combination of tighter credit, more housing and rising mortgage rates is now weighing on prices.

Kiwibank senior economist Jeremy Couchman said in a note that the first fall in 11 years might be a shock but it needs to be noted that the price falls only put house prices back at levels seen last May. “Nevertheless, house prices have further to fall in the current cycle, as credit conditions remain tight, and confidence is lacking,” he said

The RBNZ, which must consider house prices in its policy deliberations, began raising the cash rate in October last year, describing house prices as “unsustainable”.

Since then, it has said it expects prices to fall 15% from their peak in November. ANZ Bank said in a note that housing was now “decidedly cool” and there was not much in the economic outlook to stop that.

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The Big Inflation Joke…

A tail of two CPI’s today, USA and China. The former showing a slight fall from very high levels, the latter reporting the highest since July 2020 as pork prices jump 20%. In both places, central banks warn they cannot drop their guard on controlling the inflation dragon.

Already economists are talking about a down trend in the US, we will see. In contrast to the US and other major economies, consumer inflation in China has been relatively subdued this year as strict Covid control policies and sporadic outbreaks curbed consumer and business spending.

Those virus flare-ups — along with global headwinds and an ongoing real estate crisis — have kept China’s economic recovery fragile, with factory activity unexpectedly contracting last month and property sales continuing to shrink.

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Energy Bills: You Ain’t Seen Nothing Yet!…

The UK is an object lesson in stupidity as energy prices go higher and bills to households more than double in a few short months. Some are threatening to start a payment strike, as people will be forced to trade off heating versus eating.

But we in Australia are, according to the recent RBA Statement, also exposed to persistently rising energy bills. This is of course caused by the gas cartel as I have been highlighting. But the truth is, where the UK is going we may well follow, so expect persistent higher inflation in coming months. UK inflation is predicted to reach 13%, thanks to high energy costs – so just how high will we be going?

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A Message For You – From The Bond Market: With Steve Van Metre

I discussed the latest macro with Steve Van Metre, from the US. What are the current market signals saying: how will it play out?

Steven Van Metre, Certified Financial Planner™ Professional, (CA Insurance License #0D45202 & Investment Advisory Representative with Atlas Financial Advisors, Inc., a Registered Investment Advisory firm.) is a financial planner, portfolio manager, and President of Steven Van Metre Financial. He specializes in retirement income strategies and the direct management of client assets.

https://stevenvanmetre.com/

https://www.youtube.com/channel/UCRIQM-CUkxVazVPv980YZsw/videos

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