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"Intelligent Insight"
An early chat with journalist Tarric Brooker this week as we answer viewer questions and share some charts.
Timely – given all the data which is out just now.
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The latest US inflation data suggests inflation is more intractable than the markets were hoping. So what are the consequences for rates and markets in the months ahead.
Opinion is divided, but more analysts are forecasting higher rates and for longer, and are becoming more aligned to the FED’s position.
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This is an edited version of a live discussion about the state of play relating to the Australian economy, housing and finances with Leith van Onselen, Chief Economist at Nucleus Wealth and Co-founder of Macrobusiness.
Where are interest rates headed, and what will the fall out be?
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The current storm in New Zealand will hopefully clear in the next few days. But the other storm – falling home sales and prices in reaction to higher mortgage rates, will take time to work through. The RBNZ has not yet finished the tightening cycle.
So we look at the latest REINZ figures, which reveals a significant slowdown.
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Bank Branch closures were discussed on ABC Illawarra this morning – and I was able to discuss the policy and practical issues surrounding this important issue in my interview.
It also led the local headlines this morning.
Link to Senate Inquiry: https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Rural_and_Regional_Affairs_and_Transport/BankClosures
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In a special edition of Edwin’s Rant, we are joined by property analysts Louis Christopher from SQM Research. https://sqmresearch.com.au/
We look at the latest statistics and property trends and discuss where the markets are headed.
https://www.ribbonproperty.com.au/
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Our weekly market review and update, covering the US, Europe Asia and Australia.
CONTENT
0:00 Start
0:20 Introduction
1:30 Bonds
2:00 Markets
5:40 Oil Stronger On Russian Cuts
10:20 Europe and UK
12:08 China
13:00 Chinese Government Bonds
16:54 Rest Of Asia
18:00 Australia
21:00 RBA Hiding
25:35 Statement On Monetary Policy
26:00 Gold In Demand?
28:40 Crypto Commingling Funds
30:50 Conclusion And Close
A month is a long time for the markets, and after the stella rises in January, driven by hopes of inflation easing, and massive tax-driven trading, reality is now dawning, at least for some as strong jobs data and comments from Federal Reserve Chair Jerome Powell stoked worries about how much higher interest rates may need to climb.
“What has been going on for the last few days is that every other day there is a Fed governor going to talk hawkish,” said Kevin Rendino, chief executive of asset manager 180 Degree Capital.
In a note, JPMorgan said while it sees the potential for the 10-year US yield to edge somewhat higher, it thinks the two-year yield has hit a high and will pull back. Philadelphia Fed president Patrick Harker is optimistic about the US economy and the need for still higher interest rates. “We need to get above five — we’re really close to that right now — and then pause,” Harker said. “How much above five? We’ll see.”
So the Nasdaq ended lower on Friday as megacap growth stocks came under pressure after Treasury yields pointed to higher interest rates as yields on the benchmark 10-year Treasury note rose to their highest in more than a month following an auction on Thursday of 30-year bonds that saw weak demand. The yield on the US 10-year note rose 9 basis points to 3.743 while the two-year bill was at 4.53 per cent. And shares of ride-hailing firm Lyft plunged following a downbeat profit forecast.
The Nasdaq posted its first weekly fall this year, down 2.41%, while the S&P 500 ended the week lower 1.11% and the Dow Jones lost 0.17%, in a week dominated by hawkish commentary from U.S. Federal Reserve officials and earnings reports from more than half of the S&P 500 constituents.
But a rally in energy stocks as oil prices climbed on Russia’s plans to cut crude supplies helped push up the Dow and the S&P 500 The energy sector jumped 3.92% while the consumer
discretionary sector fell 1.22%.
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The RBA’s Statement on Monetary Policy, out today suggests inflation will run hotter for longer and real wages will continue to shrink into the foreseeable future.
Some politicians are pushing for the Governor to resign as analysts lift their forward thinking on rates. But what is really going on? In short no one wants to take responsibility for the mega stuff-up.
Ordinary people are being hit hard, and there is no immediate relief in sight.
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New housing legislation has been introduced to Parliament to deliver the “single biggest investment” in affordable and social housing in a decade.
States and territories tackling their own housing supply crises will have greater help via new federal bills introduced to Parliament on Thursday (9 February).
Under the umbrella of three new bills — the Housing Australia Fund Bill; National Housing Supply and Affordability Council Bill; and Treasury Laws Amendment (Housing Measures No. 1) Bill — the government has delivered “the single biggest investment in affordable and social housing in more than a decade.
But as we discuss the proposals are small and driven by a Neo-liberal mentality. Does not address the fundamentals of housing affordability but plays around the edge for political advantage. We need better!
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Stocks have enjoyed an upbeat start to the year on hopes that the Fed will abandon its hawkish rhetoric and pilot the economy to a soft landing. Traders are betting that the Fed will raise its benchmark rate to a peak of 5.1% in July, largely in line with the forecasts of Fed officials.
Many in the markets are spinning a yarn about how the inflation rate will drift lower – bobbing on the wind like a snowflake, melting away to a nice round 2%. Well, I have to tell you, I think that snowflake is in the eye of a hurricane – literally the calm before the storm. This story of a quiet adjustment is a best misleading, at worse an opportunity for others to transfer risk to the unsuspecting and make money off their backs.
A parallel to those property market “experts” who keep saying the property market is about to recover and you should buy now.
All this is fiction, as the macroeconomic backcloth points to something else, and much more destructive – soon the hurricane will be in full force. It is likely that the US economy will be in recession by the second half of 2023. This flips upside down the widely held belief that the 1st half of this year would be weak, but the second half would see a strong rebound in stocks and GDP. With the US there, other economies including Australia will get caught in the downdraft.
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