Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
The latest monthly data from the ABS revealed that inflation at the top line and core both rose in November, despite changes to the weightings.
As a result, this puts more pressure on the RBA for at least a 25-basis point hike in the cash rate in early February. The markets are still expecting more rate rises ahead.
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U.S. stocks ended up sharply on Wednesday, with the S&P 500 and NASDAQ gaining more than 1% each as investors were optimistic ahead of an inflation report that could give the Federal Reserve room to dial back on its aggressive interest rate hikes.
Investors are holding their breath in anticipation of Thursday morning’s Consumer Price Index inflation report —arguably the most important piece of economic data so far this year. There’s a lot riding on the outcome—if inflation keeps falling, that could support a market rally, while higher-than-expected inflation could send stocks plummeting.
After a stormy 2022, the Federal Reserve’s battle against inflation has become the chief preoccupation on Wall Street —with investors ascribing significant meaning to any economic data that could indicate what the Fed does next.
Recent data has been muddy. December’s hotly anticipated jobs report had something for everyone —easing wage growth and easing unemployment. Fed meeting minutes, released last week, also didn’t offer much in the way of conclusive answers.
That’s why this CPI report will command attention and go a long way toward shaping market expectations for the first Federal Reserve policy meeting of the year. The Fed Funds Futures market still sees a high probability of a quarter percentage point rate hike on February 1, but the results of the CPI report could change that.
Yet inflation swaps, transactions in which one investor agrees to swap fixed payments for floating payments tied to the inflation rate, are indicating that investors believe inflation will come down to 2.5% in the next seven months, even as the Fed’s own projections say inflation will remain well above 3% until 2024.
Bets that the Fed will soon pivot away from elevated interest rates, even as officials say that they won’t, could mean more market volatility lies ahead.
http://www.martinnorth.com/
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Join us tonight for a discussion about the latest results from our Household Surveys, stress modelling and property price scenarios.
As rates rise, how does this play out with household finances, will refinancing save the day, and will the RBA or Government intervene to turn the price falls around?
You can ask a question live.
More from our property insider Edwin Almeida, as we look at the latest incentives for NSW first time buyers, the latest from China as people there vote with their feet on property, the numbers, and of course a special chat about underquoting.
https://www.ribbonproperty.com.au/
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Interesting article in The Conversation looking at how wealth inequality has been amplified due to home price distortions and how this flows into some households at the expense of others.
They suggest tax reforms and planning reforms, but are silent on the main driver of this inequality – monetary policy, credit availability and lending policy. This is not the first-time analysts have chosen to ignore the elephant in the room.
The truth is the financialisation of property, as a policy, coupled with ultra-low interest rates and ultra-loose policy caused the problem. Question is, will this be addressed? We think not, given the power of the financial and construction sectors and their influence on governments of all persuasions.
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In the first Antispruik show of 2023, we look at recent price falls across the portals covering areas of Western Australia. This is data from the property portals extracted by Cookie, and whilst they might not be statistically accurate, the more than 100 examples tell a compelling story.
Thanks as always to Cookie for his efforts.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
The latest edition of our finance and property news digest with a distinctively Australian flavour.
Any incoming data requires interpretation to make sense. And the truth is, factors like recency bias, expectations, and hopium can all influence how newsis interpreted, and decisions made. We saw this on Friday when US markets read the data as signs of a slowing economy, and immediately went to the FED easing rate rises, despite earlier news that they are keeping at the rate rising until inflation is crimped. Treasury yields fell sharply as investors continued to price in the step down in the pace of rate hikes at the Fed’s meeting next month.
But I think the central bank will need to see further slowing of price increases in the December inflation report, due out next week, before deciding whether to slow its next rate hike. It raised rates 50 basis points in December.And future earnings expectations are likely overdone for now, so perhaps markets were one sided in their interpretation of the data. In the minutes from the Fed’s December meeting [released] this week, it was unanimous among members of the FOMC group that they are going to keep interest rates high all year long. We will see.
CONTENTS
0:00 Start
0:15 Introduction
0:30 Data is not Neutral
1:30 US Jobs Report and Macro
3:40 US Markets
7:40 Oil Down
10:20 Gas Down
12:35 Europe
14:00 China and Asia
18:00 “N” Shaped Recovery
19:00 Australian Market
20:19 Gold too high?
21:40 Crypto Bearish
23:25 Summary and Close
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Significant news from the Federal Reserve (FED) and The Peoples Bank Of China (PBOC) shows how divergent their two monetary policy paths are. The FED is committed to lifting rates sufficient to snuff out inflation (despite the markets continually seeking a pivot) and withdrawing stimulus while the PBOC is seeking to provide additional support for the Chinese economy, including the property sector.
This divergence is striking and will have significant impact on exchange rates and global financial flows. Both though are talking about Central Bank Digital Currencies.
http://www.martinnorth.com/
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Just before Christmas APRA advised the imposition of a 1% Counter Cyclical Capital Buffer on Australian Banks. Interesting timing, seeing as the Bank For International Settlements had set 2023 as the required date. Up to this point APRA has argued a 1% buffer was not needed in Australia – so what changed?
So, we wonder, are they being forced to comply. and what does this mean for our “strong” banks as interest rates rise and lending slows?
http://www.martinnorth.com/
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The latest data to end November 2022 from the RBA and APRA shows that the rate of credit growth is slowing – presumably due to higher rates and reduced borrowing power. That said refinancing including equity draw-down is on the rise…
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/