Martin North – Page 55 – Digital Finance Analytics (DFA) Blog

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borrowing to plug a ballooning budget deficit, Treasury Secretary Janet Yellen called the downgrade “arbitrary” and “outdated.”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.

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.

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

http://www.martinnorth.com/

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

The Costs Of Living Are Going Through The Roof!

The latest from the ABS on Living Costs highlights that for most households, real costs of living are rising faster than those represented in the CPI.

In fact, when rising mortgage costs are included (up 91.6%) some households are exposed to cost pressures much higher than represented in the CPI – and these are averages of course.

https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/selected-living-cost-indexes-australia/jun-2023

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.

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.

DFA Live Q&A HD Replay: Investing Now With Damien Klassen

This is an edited version of a discussion with Head of Investments at Walk The World Funds and Nucleus Wealth, Damien Klassen. Has FOMO taken over as inflation eases down, or is this a head fake?

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

“Hidden” Financial Hardship Is On The Rise!

New research from NAB suggests the average Australian feels only “moderately” stressed about money or making ends meet, but also only “moderately” comfortable they are on top of their finances, could manage a major unexpected expense, and are on track to have enough money for their future financial needs. But averages mask.

They say over 4 in 10 (43%) Australians experienced some form of financial hardship in Q2, and is now up from 29% in early-2022 amid rising inflation and higher interest rates. Money is “very much” a source of stress for 1 in 3 Australians, and 1 in 4 are struggling “very much” to make ends meet.

Financial hardship can happen at any time, and is often the result of sickness, job loss or over-commitment, but rising interest rates and cost of living is now also causing financial distress in more households.

The worsening financial situation reflects a number of factors. First, the roughly one-third of households with a mortgage are obviously being smashed by the RBA’s 4.0% of interest rate hikes, which has lifted variable mortgage repayments by about 50%. The situation facing this cohort will only worsen if the RBA hikes further. There are also around 500,000 fixed rate mortgages that will expire over the second half of this year, which will reset these mortgages from rates of around 2% to variable rates approaching 7%:

Second, the roughly one third of renting households are experiencing explosive rental growth, especially across the major capital cities: Rental inflation will remain turbo-charged given the federal government is running the biggest immigration program in history amid falling housing construction rates:

Finally, overall cost-of-living pressures are impacting all cohorts, driven by the hyperinflation in energy (gas and electricity) prices along east coast Australia.

3 in 10 Australians do “not at all” feel they could manage a major unexpected expense, and 1 in 5 do “not at all” feel on top of their day to day finances, or believe they are on track to have enough money to provide for their financial needs in the future.

http://www.martinnorth.com/

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

FOMO Grips Traders As Inflation Deflates (For Now).

Well, dangerous investor euphoria is now spreading like a rash on the belief, at least in the US, of a perfect soft landing as inflation is vanquished, without a recession. Cash and hedges are out, replaced by demand for everything from small caps to meme stocks. Industrial shares are on a tear, junk-bond spreads are narrowing, quants are ramping up Treasury shorts and everyone is piling into stocks.

How different from the recent talk about recession, as data on the surface at least suggests the US economy is thriving amid mounting evidence the Federal Reserve is beating inflation.

On Wednesday, Federal Reserve Chair Jerome Powell said the Fed was not forecasting a recession and did not rule out another rate hike, saying it would follow future economic data. But they would not hit their inflation target until 2025.

More than half of the firms listed on the S&P 500 have reported second quarter earnings as of Friday, out of which 78.7% have surpassed analyst expectations.

All the optimism has sent the S&P 500 to the brink of its sixth advance in seven months and pushed prices in the Nasdaq 100 to almost 35 times profit. It’s manna for bulls — even as it leaves them with precious little wiggle room should anything in the economy or monetary policy not unfold as hoped.

Economic data keeps defying bearish predictions — everything from gross domestic product to consumer confidence and hiring has beaten forecasts. Reports on Friday showed the employment cost index had its slowest advance since 2021 in the second quarter, while the Fed’s preferred inflation gauge posted the smallest increase in more than two years.

The personal consumption expenditures (PCE) price index increased 0.2 per cent last month after edging up 0.1 per cent in May, the Commerce Department said. Food prices dipped 0.1 per cent while the cost of energy products increased 0.6 per cent.

In the 12 months through June, the PCE price index advanced 3.0 per cent. That was the smallest annual gain since March 2021 and followed a 3.8 per cent rise in May.

http://www.martinnorth.com/

Vague Bank Of Japan Tweaks Yield Curve Control And…

While global financial markets are tightly coupled, the Bank of Japan has typically had a limited bearing on the markets. But on an otherwise quiet Friday afternoon, one sentence in its latest policy decision sent ripples through equity, foreign exchange and bond markets.

And the fact that the BoJ statement came towards the end of its typical release window had traders on even higher alert. It’s early days, but there’s a potential for some major asset price moves to occur.

The Bank of Japan on Friday loosened its yield curve control (YCC) policy, a pillar of the central bank’s efforts to limit borrowing costs and stimulate the economy.

This matters because the BoJ’s ultra-low interest rate policy was one of the few remaining forces anchoring long-term bond rates. So long as the trillions of Japanese capital could only earn 0.5 per cent on 10-year bonds, they were forced to venture to bond markets such as the United States and Australia for yield enhancement. If the BoJ is prepared to loosen that peg, the implication is for other long-term bond rates to rise because Japanese demand for foreign bonds will reduce by the higher rate.

http://www.martinnorth.com/

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

Is The Consumer Going On Strike?

Australian retail sales unexpectedly fell in June, suggesting consumers are hunkering down in response to the Reserve Bank’s 12 interest-rate increases in 15 months.

Sales declined 0.8% from a month earlier, compared with estimates for a flat reading, and erased all of their gains in May, Australian Bureau of Statistics data showed Friday. The weakness was driven by department stores and clothing and footwear, the bureau said.

Trend estimates from July 2022 onwards show that underlying growth in retail spending slowed considerably towards the end of 2022, with only modest trend growth in recent months.

The result bolsters the case for the RBA to stand pat on Tuesday for a second-straight meeting after inflation data two days ago showed a cooling of prices. Money markets trimmed bets for a final rate hike this year and the policy-sensitive three-year government bond yield pared gains.

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.

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.

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