Author: Martin North

Martin North is the Principal of Digital Finance Analytics

The UK Economy Is Delicately Placed!

The Bank of England, alongside other Central Banks say they are being data dependent as they try to balance interest rates, inflation, growth and employment.

So the latest from the UK ONS revealed that the UK economy delivered its strongest quarterly growth in more than a year, a surprising show of resilience that will keep pressure on the Bank of England to raise rates further to generate more weakness to bring inflation down in line with its forecasts.

The Bank of England is concerned that the economy’s pace, while sluggish by historical standards, is fanning upward pressure on wages and prices. While inflation has edged lower from last year’s high, it remains more than triple the BOE’s 2% target.

Gross domestic product rose 0.2% from the first quarter, the biggest increase since the start of 2022, the Office for National Statistics said Friday. The Bank of England had expected a 0.1% expansion. Output in June jumped 0.5%, more than double the 0.2% pace expected by economists.

Manufacturing and construction output were both stronger than expected in June, rebounding from the loss of a working day in May for King Charles III’s coronation. The figures point to momentum in the economy that’s likely to fan upward pressure on wages and prices, underpinning the case for more rate hikes.

Consumer spending during the quarter rose 0.7%, its biggest quarterly increase in more than a year. Business investment climbed 3.4%, a similar pace to the previous quarter. There was also a strong increase in government spending. Together, these factors offset a drag from net trade, as the volume of imports outpaced exports.

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Are There Signs The Australian Labor Market Is Slowing?

The Australian economy has been relatively stable in the face of the higher interest rates, until now but cracks may be forming as new data arrives. Our mortgage stress analysis which we reported on earlier is one.

Now Payroll jobs data says the same.

The Australian Taxation Office (ATO) receives payroll information from employers with Single Touch Payroll (STP) enabled payroll and accounting software each time the employer runs its payroll. The ATO provides selected employer and job level data items from the STP system to the ABS to produce statistics.

And according to the ABS Payroll jobs fell 0.2 per cent in the month to 15 July 2023, following a 0.3 per cent rise in the previous month.

I should say Payroll jobs are not seasonally adjusted and are predominantly employee jobs paid through payrolls. Some industries, such as Agriculture, forestry and fishing and Construction, have high proportions of owner managers who are not included in payroll reporting.

So we should note that in each release, as more complete data are received, payroll job estimates are revised. The magnitude of revisions can vary at some points of the year, such as the end of the financial year and calendar year in line with changes in the reporting activity of businesses.

That said, the ABS says “The latest month of data showed some slowing in jobs growth around the school holidays, together with the end of financial year seasonality we usually see in payroll reporting.”

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The UK Property Market Is Slowing!

UK households are facing an avalanche of cost pressures triggered by rising interest rates and the worst cost-of-living crisis in a generation. Key mortgage rates soared above 6% again this summer, and homebuilders including Ballymore Properties and Vistry Group Plc have already said they’re planning to cut staff numbers.

No surprise then that Britain’s property market showed signs of slowing to a crawl after a jump in mortgage costs reduced both buyer demand and the volume of sales. The figures add to evidence that the housing market is weakening after the quickest series of increases in interest rates lifted the cost of mortgages. Lenders including Nationwide and Halifax say property prices are falling, and some expect a peak-to-trough slump of 10% to 12% is “very likely.”

The Royal Institution of Chartered Surveyors (RICS) UK Residential Survey for July 2023 says at the national level, new buyer enquiries posted a figure of -45%, like last month’s figure of -46%. As a result, this metric continues to signal a sharp downturn in buyer demand following the latest escalation in mortgage interest rates. When viewed at the level of the English regions and the four nations, all parts of the UK display a firmly negative return for new buyer enquiries over the month.

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It’s Edwin’s Monday Evening Property Rant!

Show Me The Numbers! A deep dive into some of the fallacies which driven by MSM (and who pays the bills?) as we look at the latest from our property insider.

https://www.ribbonproperty.com.au/

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Is There Another Path To Beat Inflation?

Spain might be an example we should be looking at, as their inflation has fallen below 2%. How did they achieve this compared with the UK or Australia?

Simply put they went beyond the simplistic interest rate lever, and used effective fiscal measures as well.

So today we look at lessons we can learn from Spain, and suggest there is indeed an alternative path, but one which requires a different linkage between monetary (interest rates) and fiscal (taxes and spending).

And, don’t forget, Central Banks created the inflation monster in the first place!

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Upcoming: A Soft Hard Landing Or A Hard Soft Landing?

In a choppy trading session indexes rose in the morning, then wavered before turning negative so Wall Street closed lower on Friday after a report of slowing U.S. labor market growth, and all three major indexes posted weekly losses as investors braced for more possible downside surprises a day after disappointing earnings from Apple.

A mixed July jobs report showing fewer than expected job gains in July, but an uptick in wages that threatens a re-acceleration in inflation and so more FED action. Still the markets are holding the faith on a soft landing for the economy as the FED tightens. It still though might feel like a hard bump.

The weekly percentage declines for the S&P and Nasdaq were the biggest since March, with some investors taking profits after five months of gains due to economic data, disappointing earnings and rising Treasury yields.

The Labor Department reported that U.S. employers added 187,000 jobs in July. Data for June additions was revised lower to 185,000 jobs, from 209,000 reported previously. Average hourly earnings rose 0.4% in July, unchanged from the previous month, exceeding expectations, taking the year-on-year increase in wages to 4.4%.

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This Time Is Different! – With Tarric Brooker

My latest Friday chat with Journalist Tarric Brooker, as we deep dive into the latest charts and trends.

You can see the charts here: https://avidcom.substack.com/p/dfa-chart-pack-4th-august-2023?sd=pf

Japan article here: https://avidcom.substack.com/p/kamikaze-bank-of-japan-policy-and

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Rates Higher For Longer Says The Bank Of England!

The Bank of England lifted rates again today by 0.25%. They also signalled rates would be higher for longer, and that they would be data driven (similar message to the FED and ECB).

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Hitting The Wall As Debt Spikes And Fitch Asks The Question!

This year’s $6.5 trillion rally in stocks hit a wall, following hot labor-market data and a ramp-up in Treasury issuance just a day after a US credit downgrade by Fitch Ratings.

As a result, Wall Street finished lower on Wednesday, with the S&P 500 and Nasdaq Composite down for a second straight day as investors took profits on five months of gains a day after rating agency Fitch cut the U.S. government’s credit rating.

Fitch downgraded the United States to AA+ from AAA late on Tuesday, citing expected fiscal deterioration over the next three years as well as growing government debt. Fitch was the second major agency to cut the country’s rating. In 2011 Standard & Poor’s stripped the country of its triple-A grade.

Pushing back hours before her department is set to ramp up its borrowing to plug a ballooning budget deficit, Treasury Secretary Janet Yellen called the downgrade “arbitrary” and “outdated.” The economy has recently shown signs of resilience and the debt limit was ultimately lifted, she noted.

The US budget deficit surged to record levels when the government spent heavily to support households and businesses as Covid shut down the economy. It shrank last year, but now it’s widening again. The federal deficit hit $1.4 trillion for the first nine months of the current fiscal year, almost triple the year-earlier figure. The US Treasury this week boosted its borrowing forecast for the current quarter to $1 trillion, well above the $733 billion it had predicted in May.

Fitch’s downgrade is a signal that the US needs to get its budgetary process in order ahead of what looks like another political fight this fall, and possibly another government shutdown.

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

Household Financial Stress Update: July 2023

A quick update from our latest modelling which shows financial pressures continue to build across Australia.

You can join me for a live discussion about this analysis, and look at specific post codes next Tuesday. https://youtu.be/oiiDCfxiwPU

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