Author: Martin North

Martin North is the Principal of Digital Finance Analytics

Fed Minutes Stoke The Dollar, Shares Slide Some More (But Don’t Mention The Ruble!)

Stock indexes fell on Wednesday and the U.S dollar surged to a nearly two-year peak, after the Federal Reserve released minutes from its last meeting that reinforced views the central bank may tighten aggressively to curb inflation.

According to minutes of the March 15-16 policy meeting, Fed officials “generally agreed” to cut up to $95 billion a month from the central bank’s asset holdings as another tool in the fight against surging inflation, even as the war in Ukraine tempered the first U.S. interest rate increase.

In March, the Fed raised rates for the first time since 2018 and pivoted away from an easy monetary policy during the coronavirus pandemic. The FOMC is expected to approve the balance-sheet reduction at its next gathering May 3-4.

The United States imposed more sanctions on Russia on Wednesday, as Russian forces bombarded cities in Ukraine. But the Ruble fights back, thanks to the elevated price of oil driving bigger receipts for Russia. So how effective will sanctions be?

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

Bye-Bye Bear Rally?

Stocks fell sharply Tuesday, with the tech-heavy Nasdaq Composite leading the way among major indexes after remarks by Federal Reserve Gov.

At the close in NYSE, the Dow Jones Industrial Average lost 0.80%, while the S&P 500 index fell 1.26%, and the NASDAQ Composite index fell 2.26%.

Lael Brainard sparked a jump in Treasury yields. Brainard, in a speech, said the Fed will “continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting.”

The rally in stocks over the past few weeks has been remarkable, but in our view it has all the characteristics of a bear market rally, and we view month/quarter end as the perfect spot for it to come to an end.

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

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

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Edwin understands your needs. So why not engage a licensed professional to stand alongside you. With RPC you know you have: experience, knowledge, and master negotiators, looking after your best interest.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

FINAL REMINDER: DFA Live 8pm Sydney Tonight: Latest Household Stress And Mapping Q&A

Join us for a live discussion as I explore the latest from our surveys and models. Where are prices trending, and how are financial stress footprints trending.

You can ask a question live. The post code database will be online.

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

A Deep Dive On Household Debt And Income Ratios…

We look at the latest data from the RBA on household ratios, and ask how meaningful they are, given the assumptions and basis of calculation on which they are based.

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

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Edwin understands your needs. So why not engage a licensed professional to stand alongside you. With RPC you know you have: experience, knowledge, and master negotiators, looking after your best interest.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

Below The Budget Blizzard

I have to say last week’s media coverage of the Budget was at least sycophantic, at worst deceptive. Take the Tele’s working class plan headline. The coverage missed the point, and in fact the short term-cash splash – aka bribe will soon be totally consumed, and people will generally be worse off.

There were a couple of high points in the online media though which go to the heart of the story. This from Alan Kohler in the New Daily, focussing on the strategic errors which were made in 2020, thus creating a higher than needed debt burden for the country.

And this from Michael West Media, By Callum Foote arguing that Frydenberg hides $30 a week tax increase for most Australians.

Treasurer Frydenberg announced a number of cost-of-living measures in his budget speech.

These include a one-off $250 cost of living tax offset for more than 10 million low and middle-income earners, a boost to people receiving the low and middle-income tax offset by $420 for the 2021-22 financial year as well as halving the fuel excise for six months.

What the Treasurer didn’t say is that the additional $420 tax offset for low and middle-income earners he mentioned will stop entirely at the end of this financial year, on June 30.

The extra cash bumps the tax offset up to $1500 this year which ends on June 30.

This means that despite the extra cash given to them this year, those on this tax offset will be $1500, or almost $30 per week, worse off.

A New Financial World Order – Or Just A Ruble Gold Gamble?

Are we at the edge of a new financial world order, triggered by the Ukraine conflict and Russia’s move to gold back the ruble?

Well, we have been noting the fact that both China and Russia have been adding to their Gold Holdings in recent years, in a deliberate strategy to be able to insulate their currencies in time of crisis from the mighty USD.
Since 2005 alone, Russia has more than tripled its gold holdings, so the Russian Federation has the fifth largest officially reported gold reserves after the USA, Germany, Italy, and France. In comparison, by the way Australia is nowhere…

Now, amid all the noise and fury from the Russia Ukraine conflict, is a development which may well shake the international financial system to its core, because the Russian central bank restarted buying gold from banks and will pay a fixed price of 5,000 rubles ($52) per gramme between March 28 and June 30, the bank said on Friday.

The central bank, which suspended gold purchases from banks in mid-March to meet increased demand for the precious metal from households, said the resumption of buying would help ensure sustainable supply and the uninterrupted functioning of gold producers.

The current decision was made against the background of new Western sanctions against Russian banks. The purchases are a clear statement against dollar hegemony, especially when combined with the fact that more than half of all U.S. Treasuries have been dumped since January 2014.So when did Moscow start planning a gold-backed ruble? Economist Jude Wanniski had recommended this as early as 1998 in a sensational editorial in the Wall Street Journal.

Only a gold-backed ruble could free Russia from the debt crisis and establish international acceptance of the Russian currency, he said at the time. It seems that Vladimir Putin has taken up this idea again two decades later.

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

New Zealand Housing Inequality Grinds On

There was a significant piece in The Conversation by Claire Dale, Research Fellow At The University of Auckland – titled The coming storm for New Zealand’s future retirees: still renting and not enough savings to avoid poverty

A large number of New Zealanders are facing a perfect storm at retirement, with minimal savings and no house, raising the risk that thousands will enter old age in poverty.

According to the latest retirement expenditure guidelines from Massey University, a two-person retiree household living an urban “choices” lifestyle, which includes some luxuries, would need to have saved NZ$809,000. In the provinces, a couple would need to have saved $511,000.

New Zealanders have traditionally relied on owning a home to support themselves during their retirement years. But many of the New Zealanders now aged between 50 and 65 – a cohort of almost half a million people – will go into retirement as renters after skyrocketing house prices over the last three decades put home ownership out of reach.

At the same time, this generation were already working adults when the Labour government introduced KiwiSaver in 2007, and are less likely to have a significant savings cushion.

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

China’s Property Fuse Burns Bright

Every time I look at the Chinese Property Sector, I get a sinking feeling, and a complete contradiction of statements on what is really going on – to the point where it is really hard to know where truth lays.

One report says State-owned developers in China are accelerating plans to tap debt markets in a further sign of easing for the embattled real estate sector, while Beijing takes steps to set up a multi-billion dollar stability fund for the financial industry.

Yet, China’s home sales slump deepened in March, keeping pressure on cash-strapped developers even as policy makers vow to support the property market.

The 100 biggest companies in China’s debt-ridden property industry saw a 53% drop in sales from a year earlier, according to preliminary data from China Real Estate Information Corp. That’s the steepest decline this year.
And one of the biggest developers, said China’s housing market reached a peak last year.

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

In The Shadow Of Inversion…

Welcome to our latest weekly market update, as we survey the action in the US, Europe Asia and Australia, and touching on Oil, Gold and Crypto as we progress.

Investors begin a new quarter wondering if the fighting in Ukraine, the isolation of Russia and the Fed’s increasingly hawkish turn will engender still more volatility and losses for stocks and bonds.

As the bets of aggressive Fed action continue to be priced into markets, fears are growing that the Fed may slow growth by too much and tip the economy into recession. The U.S. yield curve extended its recent flattening as Treasury yields, which retreated earlier in the week as portfolio adjustments boosted demand for bonds, spiked again on Friday, causing a closely watched part of the yield curve to invert for the third time this week. The yield on the 2-year Treasury bond (2.4625%) jumped above the yield on the 10-year Treasury note (2.389%).

An inversion of the yield curve, when shorter-dated yields rise above longer-dated ones, is seen as a harbinger of a recession in the next one or two years.

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