Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
Another deep dive into the data with Journalist Tarric Brooker as we explore the recent events in China, the housing story (and political announceables), the mortgage cliff (or not) and lots more.
Slides are available here: https://avidcom.substack.com/p/dfa-chart-pack-18th-august-2023
Tarric’s article which we mention is here: https://avidcom.substack.com/p/aussie-fixed-rate-mortgage-cliff
http://www.martinnorth.com/
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Scotty from Star Trek cries, as the Enterprise shakes and hums, as they try to squeeze more out of the warp core. This to me is a good analogy to what’s happening in the economy, based on the latest data from the ABS.
First, Average weekly ordinary time earnings for full-time adults was $1,838 in May 2023, according to new seasonally adjusted figures released today by the Australian Bureau of Statistics (ABS).
The ABS also said the unemployment rate increased by 0.2 percentage points to 3.7 per cent in July (seasonally adjusted).
Now three points, we know that given the pressures on households many are seeking and able to work more hours, and many via multiple jobs to increase income to cover the rapidly rising costs of living – including of course rental payments or increased mortgage payments.
Second, the rise in the unemployment rate is partially explained by the school holidays which occurred through the sample period.
But third, again we have sampling changes as the ABS roll off old samples, and bring a new one in. And here we see the new sample contains significantly higher unemployment counts sufficient to move the dial.
Thus, there is little here to prove that unemployment is rising so implying the RBA won’t hike. Next month we will likely see things moving around, but the gross growth in hours worked in the real issue – how much further can that be pushed, I suspect we are to return to our Star Trek introduction, pushing the Australian economic engines as far as they can go – until something breaks!
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
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UK inflation remained higher than expected last month as the cost of travel and holidays climbed, adding to the case for the Bank of England to raise interest rates again, this despite an expected fall in energy prices.
The Consumer Prices Index rose 6.8% in July, exceeding the 6.7% rate expected by economists, the Office for National Statistics said Wednesday. It was the fifth time in six months the figures surprised on the upside. Inflation remains more than triple the BOE’s 2% target.
While falling energy and food price inflation brought the headline rate down from 7.9% in June, the cost of services accelerated by 0.2 percentage points to 7.4%, matching highs touched in May and in 1992.
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.
An in-depth look at New Zealand, as the Reserve Bank holds rates at 5.5% and underscores the need to hold rates higher for longer. Plus, the inquiry into Banking Competition fires up, and the Chief statistician says people do not want to talk to them! Wonder why?
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Wall Street’s main stock indexes closed sharply lower on Tuesday after stronger-than-expected retail sales data stoked worries interest rates could stay higher for longer, while U.S. big banks dropped on a report that Fitch could downgrade some lenders.
The U.S. retail sales data comes on the heels of strong inflation readings for July, and could potentially give the Fed more impetus to remain hawkish in the coming months. Such a scenario bodes poorly for risk-driven assets, particularly tech stocks.
The Commerce Department report showed retail sales grew 0.7% last month against expectations of a 0.4% rise, suggesting the U.S. economy remains strong.
After the data, traders’ bets of a pause on hikes by the Federal Reserve next month stayed intact at 89%, yet analysts said investors were worried rates could stay at current levels longer than anticipated.
Banks saw the brunt of the selling as investors grew more anxious about interest rates. The U.S. Treasury yield curve has been inverted for over a year, with longer-term bonds yielding less than short-term debt instruments. This persistent situation pressures profits that banks can earn on loans.
http://www.martinnorth.com/
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Home prices are driven by a combination of demand where population growth thanks to high migration puts upward pressure on prices; supply where more property for sale puts downward pressure on prices, and availability of credit as the catalyst for transactions to occur.
Much of the debate is currently centered on supply side issues. As I discussed last week, Outgoing Governor Phil Lowe, urged governments at all levels to work together to address the problem of housing affordability. Notably, he dismissed rent controls as a short-term fix that would provide immediate relief by reducing the incentive to fix the key problem: supply.
“There aren’t short-term solutions here. The solution has to be putting in place a structure that makes the supply side of the housing market more flexible and that means zoning and planning deregulation and it means state and local governments being part of the solution.”
This means that first time buyer incentives, or rental support just make the problem, worst – something which I have highlighted over the years (and which by the way the Productive Commission also confirmed).
But my fear is that the un-defused credit bomb will be skirted around and as the supply side elephant is paraded through the streets. But it is the credit Elephant in the room which should be addressed, even if it shrinks bank balance sheets and profits. If not, nothing will fundamentally change and prices will remain as out of whack as they currently are.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Our latest dissection of the property market – at the start of an important week in the future of housing with our property insider Edwin Almeida.
We look at the range of serious issues ahead, with an uptick in potential visitors to Australia, a small rise in listings, and a fall in rental availability as some of the factors crimping property investors bite.
We also look at the proposed rental freeze legislation from the Greens.
In such an important week, we will be live tomorrow with Edwin and taking questions on these critical issues. https://youtube.com/live/KpdkhMrhl_k
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Our normal weekend market update, as incoming data is all over the show. No wonder things are volatile!
The S&P 500 and the Nasdaq Composite fell on Friday and posted their second straight weekly losses, as hotter-than-expected U.S. producer prices data pushed Treasury yields higher and sank rate-sensitive megacap growth stocks. Being data dependent, means markets will be highly volatile over the northern summer.
Data on Thursday showed U.S. consumer prices increased moderately in July, with the smallest annual increase in core inflation in nearly two years, lifting hopes that the Federal Reserve is at the end of its rate hike cycle.
However, San Francisco Fed Bank President and CEO Mary Daly said that more progress is needed before she would feel comfortable the Fed has done enough to rein in inflation.
US producer prices picked up in July, primarily due to increases in certain service categories, highlighting the choppy nature of getting inflation back down to target.
According to the Bureau of Labor Statistics the producer price index for final demand, as well as the core index which excludes food and energy, both rose by 0.3% in July, While those came in slightly more than forecast, downward revisions to the prior month tempered some of the strength.
Normalizing global supply chains, tepid demand abroad, and a broader shift in consumer spending toward services and away from goods have generally helped alleviate inflationary pressures at the producer level over the last year. But headwinds are building again as oil prices climb.
Service costs rose by the most in nearly a year, reflecting increases in categories including portfolio management, outpatient care and passenger transportation. Several categories from the PPI report, notably in health care, are used to calculate the personal consumption expenditures price gauge — the Federal Reserve’s preferred inflation measure — that will be released later this month.
http://www.martinnorth.com/
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A key measure of US consumer prices rose only modestly for a second month, bolstering hopes that the Federal Reserve can tame inflation without sparking a recession. But the results hardly moved markets at all, bearing in mind the next FED meeting is in September to more data will be to hand.
The core consumer price index, which excludes often-volatile food and energy costs, rose 0.2% for a second month, Bureau of Labor Statistics data showed Thursday. That marked the smallest back-to-back gains in more than two years.
Economists view the core measure as a better indicator of underlying inflation than the overall CPI, which also increased 0.2%. The annual CPI measure, however, picked up slightly due to a less-favorable comparison with the index a year ago.
Or in other words, the past help from the base effect is diminishing.
The progress on inflation, combined with solid economic growth and a healthy but gradually cooling labor market, represent another step in the right direction for the central bank. The highest interest rates in 22 years have played a role in calming price pressures but have yet to tip the nation into a recession many economists once thought was inevitable.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
The outgoing RBA Governor appeared before the House Economics Committee on Friday. We look at some of the key themes, including the trajectory of interest rates and inflation, rental control, productivity, bank profits and the impact of rising gas prices.
Interestingly he did suggest the RBA had done too much through COVID and this included the creation of too much liquidity, and too low rates – as insurance – which was not ultimately needed!
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.