Martin North – Page 14 – Digital Finance Analytics (DFA) Blog

Markets Reach For The Stars, Even As A Nascent Turn Is Under Way!

This is our weekly market update, starting in the US, then Europe, Asia and Australia and covering commodities and crypto.

This week, hopes of US interest rate cuts before the end of the year rose after data this week showed that inflation was cooling faster than expected, has muddied the waters, though all three US benchmarks powered higher, despite results from three major banks, which disappointed for different reasons. MSCI’s gauge of stocks across the globe rose 0.78, hitting another record intraday high.

The S&P 500 and Dow surged to all-time highs before giving up much of those gains by the close. So far this year, the Dow has risen 6.4%, underperforming the broader S&P 500 and the tech-heavy Nasdaq Composite, which have advanced 18.2% and 23.1%, respectively, over the same period. The S&P 500 was recently trading at 21.4 times forward earnings, compared to a historical average of 15.7, so its probably way over-valued!

Banks got hit at the start of the US earnings season after reports from JPMorgan, Citigroup and Wells Fargo. Wells Fargo slumped 6 per cent after warning it won’t be able to whittle away costs as fast as forecast, after the lender missed estimates for quarterly interest income. JPMorgan missed on a few key metrics like net interest income — despite posting record profit from by rising investment banking fees. However, shares of the world’s largest bank dipped 1.2%. Citigroup said costs for the year are likely to be at the high end of the range previously provided and fell 1.8% despite reporting a surge in investment banking revenue.

In Australia, the flagship S&P/ASX 200 Index gained 0.9 per cent, to a record 7959.3 points, to finish the week up 1.2 per cent. In the final session of the week, the market was helped higher by Australia’s largest bank, CBA which added 1.3 per cent to $131.66, extending a bull run that has sent shares up more than 30 per cent in 12 months. As CBA ended the day with a $220.3 billion market cap, it surpassing BHP’s $220.1 billion capitalisation. The latter finished the day 0.37 per cent lower at $43.40 after informing the market late on Thursday that it would suspend nickel mining operations in Western Australia. Friday marked the first time that CBA has overtaken BHP as Australia’s most valuable public company since November 2021.

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US Markets Swing Towards Rate Cuts As Inflation Eases…

Here we go again, as inflation, which had been falling last year, but rising in the first part of 2024, now appears to be easing again, so markets who at the start of the year saw 6 rate cuts, then trimmed them to none, and possibly a rise, are now again betting on multiple cuts later this year. Talk about fickle.

Actually, US inflation did cool broadly in June to the slowest pace since 2021 thanks to a long-awaited slowdown in housing costs as the so-called core consumer price index — which excludes food and energy costs — climbed just 0.1% from May, the smallest advance in three years the Bureau of Labor Statistics reported. Core CPI climbed 3.3% over the last 12 months after rising 3.4% in May.

Its too soon to bank big rate cuts in the US, as the data remains mixed, but the market is like a set of lemmings swinging one way and the next, in trying to out guess the FED. But certainly, it’s more likely now that the FED will cut well before the RBA where inflation is still on the up.

The RBA needs to tackle seemingly much higher and more intractable inflation while maintaining a far less restrictive policy given its 4.35 per cent cash rate, a rate lower than many peers. This is a policy error which will inflict lasing damage on the local economy.

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

Our Economic Update For July!

This is my quick economic summary for July, where I look over the recent data highlight some of the key questions ahead.

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Kiwi’s Feeling Recessionary, While The Central Bank Turns A Bit Dovish!

If you talk to ordinary Kiwi’s across New Zealand, its pretty clear things are not looking good. We already highlighted the easing of home prices and businesses are closing in many centres, take for example, downtown Wellington, New Zealand’s capital city, where dozens of empty shops speak to an economic gloom that’s pervading the entire country.

Retailers are in the front line as households simply do not have money to spend, given the current 5.5% interest rate, and until now expectations that rates will remain here for the rest of the year. Struggling retailers are the most visible sign of a sag in demand that’s hitting multiple industries, from manufacturing to construction and real estate.

Possibly the latest Reserve Bank released “OCR 5.50% – Inflation Approaching Target Range” gives a slight hint of possibly earlier relief, but barring the pandemic-induced slump in 2020, the economy is heading for its worst year since the Global Financial Crisis 15 years ago.

The RBNZ on Wednesday acknowledged that domestic price pressures still remain strong, but said there are signs “inflation persistence will ease in line with the fall in capacity pressures and business pricing intentions.”

So, it does appear the RBNZ’s next move will be a cut, though there is a wide range of views on the timing — from as soon as August this year to as late as the first quarter of next year. They will be reliant on incoming data, and we know from previous history data can turn negative quite quickly, once we factor in the current higher Oil prices, and shipping costs alongside weaker new migration as more Kiwi’s head offshore.

In the longer term, it could be the higher Kiwi rate will pull them through the inflation battle quicker than in Australia where rates are a lower 4.35%, and where there is still talk of a need to raise rates to pull inflation down. At least in New Zealand, inflation is easing, for now; but the social and economic consequences of the brutal Monetary Policy will be with us for years.

Worth remembering that this bout of inflation was inflicted by too loose monetary policy, QE and high Government spending and debt. As always policy makers case the problem but real people play the price!

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More Household Trouble In The Land Of OZ: 2: Post Code Analysis (You Asked; We Answered!)

This is the second post relating to our household stress analysis for June 2024, in which we answer specific viewer requests for deep dive analysis at a post code level. Specifically we covered:

2250 Gosford 6210 Mandurah 3021 St Albans 2213 Panania 3064 Craigieburn 3754 Doreen 3109 Doncaster East 3465 Avoca 3199 Frankston 3942 Mornington 3266 Warrnambool 3220 Geelong 6026 Karrinyup

See the first show in the series here: https://youtu.be/e6lPGQ7KZ5M

You can obtain the full dataset by subscribing via Patreon: https://www.patreon.com/DigitalFinanceAnalytics

You can get details of our One to One service here: https://digitalfinanceanalytics.com/blog/dfa-one-to-one/

Or send a message via the DFA Blog, for an individual post code data set.

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