In a follow-up to my recent post about the impact of financial stress on households (after the recent Government largesse), today we do a deep dive into the mapping of mortgage, rental, investor and overall financial stress, together with the latest data on defaults and investor returns for Australian post code. We centre our analysis on the main unban areas across the country.
My earlier show on stress is here: https://youtu.be/eRM8alMOi4g which includes my ideas about how to respond to financial pressures.
I plan to make a third show about specific post code analysis, so if you want data on a specific code, drop it in the comments below over the next few days.
Details of my one to one service are here: https://digitalfinanceanalytics.com/blog/dfa-one-to-one/
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Today’s post is brought to you by Ribbon Property Consultants.
This is our weekly market update, where we start in the US, go across to Europe and Asia and end in Australia, covering commodities and crypto on the way. And which ever way you look at the past week, it was a volatile perfect storm driven by weird US jobs data, Middle East tensions, and Japan’s policy shift which together managed to ignite global market chaos. Ahead, I think traders need prepare for an extended period of uncertainty and volatility.
They continue to swing from one side of the deck to the other, as Investors over-reacted swiftly and decisively, dumping stocks in a classic risk-off maneuver, from a far weaker-than-expected Nonfarm Payrolls (NFP) report but then ran back, on slightly stronger data a week later. Many economists reckon the reaction to the data was overblown given the numbers may be skewed by immigration and Hurricane Beryl and better-than-expected jobless claims data on Thursday also supported that view, sending stocks rallying.
The market panic that began in the U.S. quickly spread to Asia, with Japan bearing the brunt of the sell-off. The Nikkei 225, Japan’s benchmark stock index, suffered its most catastrophic decline since the infamous Black Monday of 1987, plunging by a staggering 12% within just six hours. The Japanese yen surged in value by over 10% in less than a month, triggering stop orders and forcing numerous macro hedge funds to liquidate their long USD/JPY positions. Thus, the unwinding of the yen carry trade triggered a vicious cycle of selling pressure, which spread into other markets. But then we got a pull back from the BOJ on potential rate hikes and on Tuesday, S&P 500, Nikkei 225 and bitcoin reversed to the upside and a sense of normalcy started to returned to the markets.
The VIX, which had traded roughly between 12 and 20 for most of the year until last Friday, surged to above 65 — a level associated with outright investor panic (but note the VIX futures did not), and commentators like former Treasury Secretary Lawrence Summers suggests there are technical issues with the VIX, “My understanding is that because there are some illiquid instruments that go into the calculation of the VIX, the VIX had a somewhat artificial move on Monday,” Summers told Bloomberg. “Since that is so widely watched an indicator, issues of liquidity, issues around how it settles, I think should be studied by the relevant parties in the industry and the regulator — the SEC.” The VIX closed down 14.4 per cent to 20.37 in Chicago on Friday.
Investors also await next week’s readings on U.S. consumer prices and retail sales for July, which could provide fresh evidence on the chances of a soft landing for the American economy.
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Demand for a place to live remains very high, driven by population growth from mega-high migration and low but perhaps improving vacancy rates in the rental sector. We know that roughly one third of households own their own property, outright, one third own with a mortgage, and one third rent. Those in the last two categories are expanding, while those who own outright are shrinking as a proportion of the total – though with some state variations.
Over recent decades, the Government has effectively outsourced the provision of rental housing to the private sector, via mum and dad investors, who get considerable tax breaks to hold property for rent, and more recently though the rise of the so-called build to rent sector, which is being held out as a solution to the lack of property for rent.
The critical question is do we want to go further into the mire of neo-liberalism and let big international investors build homes to rent in Australia, with rents that according to Cameron Murray are typically higher than local providers, while offering even more tax breaks, to corporates, or should the Government get back into the home building game, (see my discussion with Elisa Barwick yesterday) through a public bank, and also dial back migration to a sustainable level. Ideology apart the answer seems obvious, and yet… they still want more migrations to pump GDP and more build to rent to meet a housing target which was built in fairy land.
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Today’s post is brought to you by Ribbon Property Consultants.
In today’s deep dive, Elisa Barwick from the Australian Citizens Party shares her research on why housing has become so expensive, and what can be done about it. But this is not the normal discussion of high migration or currently government policy, rather it sheets the cause to a chapter of history dominated by neo-liberalists, austerity and the rise of technocrats who still now dominate our lives.
The Reserve Bank held its cash rate at 4.35% for a sixth straight meeting on Tuesday and lifted its forecasts for inflation and economic growth. In her press conference after the policy decision, Governor Michele Bullock said there’s still a risk that inflation will take too long to return to target and said it’s too early to be talking about imminent easing. Core prices at 3.9% remain well above the bank’s target and its largely driven by non-discretionary spending such as insurance, education and housing rent.
It now sees underlying inflation easing to 3.5% by the end of this year, and then hitting 3.1% in mid-2025. The gauge is seen falling just shy of the 2.5% target mid-point at the end of the forecast horizon.
The governor did tell reporters that the board discussed a hike before deciding to pause again and said a tightening couldn’t be ruled out due to upside risk to inflation.
But as governor Bullock delivered her comments and answers at Tuesdays press conference, it became clear there are disconnects between inflation in Australia and other countries, a divergence between the bank and markets about the future trajectory of interest rates, a revision to how restrictive current interest rate settings are in Australia, and a problem with the impact of Government “support” in its broadest sense estimated to be circa $40 billion across federal and states, plus the tax cuts.
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This is an edited version of a live discussion with Head of Investments at Walk The World Funds and Nucleus Wealth, Damien Klassen as we dive into the current market chaos and explore what is really going on. Is this a replay of the DotCom bubble, or a minor glitch, and where will the markets pivot to next?
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This weeks rant got a bit controversial as Edwin and I dissected a couple of recent bathroom renovations, considered the root causes of social unrest, and discussed whether housing should be a human right. We also looked at the latest numbers and recent media reports, ahead of the RBA decision tomorrow.
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Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
Today we look at the real impact of the recent Government support initiatives for households, as we update our models to the end of July, and adjust the tax bands, income changes, extra cost of living support and other initiates from both state and federal governments.
Actually, while there were some improvements, not all households benefitted equally, so we look at the data at a state, segment and post code level, to see who befitted the most.
On Tuesday 13th August we will run a live show on this topic and do an even deeper post code dive.
We are now deep into uncertain territory, as the thesis “this time is different” is being tested by reality, and for now, reality is winning. Investors are running from one side of the boat (hopefully not the titanic), to the other, as a fear of recession iceberg looms for investors still leveraged to the gunnels in AI tech, are hopelessly wrongly positioned for such an event.
I can show you thousands of reports claiming this time is different – plenty suggesting the long inverted bond yield curve had lost its power to predict a recession; plenty arguing extreme share market concentration was no big worry; plenty arguing that the mini bubble in artificial intelligence was nothing like what we saw in the DotCom era. But now, (as expected), all those beliefs are being challenged by a perfect storm of market fears. Even though talk of broad recession still seems far-fetched, with real-time U.S. GDP estimates still tracking growth of 2.5%, fears of a negative pulse through the industrial world from a stuttering Chinese economy have been building for weeks.
A series of ugly data points also inflamed investors’ recession fears. There was the weaker than expected data on job openings and a manufacturing activity gauge that showed US factories are going backwards with data showed U.S. manufacturing activity contracted at the fastest pace in eight months in July. And then US non-farm payroll data showed the US economy added 114,000 jobs in July, compared to expectations for 170,000 jobs, while the unemployment rate rose from 4.1 per cent to 4.3 per cent. Did Hurricane Beryl, which knocked out power in Texas and slammed parts of Louisiana during the payrolls survey week, contributed to the below-expectations payrolls gain? Notably, June’s labour market data was also revised down; downward revisions have now occurred six out of the last seven months. We are close to a possible triggering of the so-called ‘Sahm rule’ that maps the pace of a rising U.S. jobless rate against the onset of recession.
And this to me could be said of the broader markets too, hard to read from here – the likelihood of more declines and rotations from big tech are there, at least until NVidia’s next update, while markets might now have swung too far towards recession fears (remember traders make money from volatility). A very interesting time heading into the next RBA meeting… and a continue to believe markets will slide into September. Perhaps now the FED PUT is in play, again..
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As expected, the Bank of England finally cut the base rate by 0.25%, to 5%, the first cut in four and a half years though it was a finely balanced decision which reflected increased confidence that the worst inflation shock in decades, was easing. The Bank of England governor, Andrew Bailey, said inflationary pressures had “eased enough” to enable the first cut since the Bank stopped ramping up borrowing costs this time last year.
The MPC was split by five votes to four, exposing divisions within the central bank’s most senior ranks, with Bailey casting the deciding vote for a quarter-point reduction.
Households which saw borrowing costs rise to the highest level since the 2008 financial crisis can look to lower mortgage rates, though the bulk remain on high fixed rates for now. But Bailey said savers and borrowers should not expect large reductions over the coming months, amid concerns about lingering risks to the economy. “We need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much,” he said. “Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country.”
Remember that Prices remain significantly higher than three years ago and are still rising despite Inflation falling back to the 2% government target in May. The Bank remains concerned over stubborn price increases in the service sector of the economy and resilience in wage growth.
So, while the Bank of England did cut, the UK economy is not out of the woods yet, and we should expect a tick up in inflation ahead, so the next few months data will still be important. And taxes of course, will continue to grind higher.
