Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
Another outing, thanks to Cookie, looking at recent property price reductions, and cross correlating these with data from my core market models. It is clear that property prices are on the turn in the last hold-out state now, and we know that mortgage stress is higher in the Northern half of the Apple Isle.
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This past week was momentous, as Central Banks continued to lift rates in an attempt to crush inflation. A half dozen central banks, including in the United States, Britain, Sweden, Switzerland and Norway, delivered rate hikes this week to fight inflation, but it was the Fed’s signal that it expects high U.S. rates to last through 2023 that caught markets off guard.
“There had been some optimists out there saying that inflation may be coming under control, but the Fed effectively told them to sit down and shut up,” said David Russell, VP of market intelligence at TradeStation Group. “The Fed is trying to rip the band-aid off, trying to kill inflation while the jobs market is still strong.”
So finally, I think markets are waking up to what’s happening – no immediate pivot, higher rates for longer – and even if house prices or markets fall.
Goldman slashed its year-end target for the S&P 500 to 3600 from 4300, which it had made in mid-August. “The expected path of interest rates is now higher than we previously assumed, which tilts the distribution of equity market outcomes below our prior forecast.”
“Based on our client discussions, a majority of equity investors have adopted the view that a hard landing scenario is inevitable, and their focus is on the timing, magnitude, and duration of a potential recession and investment strategies for that outlook.”
Federal Reserve chairman Jerome Powell said the US economy may be entering a “new normal” following disruptions from the COVID-19 pandemic. “We continue to deal with an exceptionally unusual set of disruptions,” Powell told business and community leaders at a Fed Listens event in Washington.
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More than 90 Central Banks have now lifted rates, more than half by at least 75 basis points in one go this year. Last night the UK lifted by 0.5% and we look at their outlook, as more channel Paul Volcker who is widely acknowledged as the premier inflation fighter in Federal Reserve history.
When President Carter nominated him to be Fed Chair in July 1979, Volcker knew he faced a daunting task. Inflation was 11 percent, inflicting pain on financial markets and economic performance, and the second oil shock was unfolding. The Fed’s lack of inflation-fighting credibility had generated severe currency devaluation and a U.S. dollar crisis in late 1978.
At his confirmation hearings before the Senate Banking Committee, Volcker made his views clear. The Fed would have to clamp down on monetary policy to reverse the damaging upward price-wage cycle and wring out inflationary expectations. To his credit, Carter supported Volcker, even though he knew it may cause a recession, as did President Reagan.
Volcker took heat when the Fed sent rates soaring and the economy incurred back-to-back recessions.
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Australian households are among the most indebted in the world and the interest rate increases by the Reserve Bank will generate a big potential problem” for many people and the wider economy.
We have a big potential problem courtesy of the way we have run our housing system, for not just the last decade but for the last at least three decades.
Our housing system is only weakly governed by real housing policy objectives, that is, ensuring everyone can own or rent a decent affordable home. Instead, it is governed by objectives of wealth creation, and sometimes by concerns about financial system stability.”
Macro-economic issues like the rising cost of living, inflation and economic pressures are influencing trends in first-party fraud, with almost one in five (19 per cent) Australians believing it’s okay to tell a “white lie” and report having less debt than they actually have in a financial service or loan application.
The implications for financial stability as rates rise are potentially significant!
Go to the Walk The World Universe at https://walktheworld.com.au/
Another episode, thanks to research from Cookie, as we look at price reductions from the portals across Far North Queensland. Despite the massive spruiking we see a number of properties hanging around, and price reductions to match.
This not a scientific piece of analysis, and we do not know the story of single properties, but the trends are pretty clear. And we use data from our core market models to highlight the drivers.
The latest edition of our finance and property news digest with a distinctively Australian flavour.
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To no one’s surprise the Federal Reserve delivered its third consecutive 0.75% rate increase on Wednesday as the Federal Open Market Committee raised its benchmark rate to a range of 3% to 3.25% from 2.25% to 2.5% previously. It was all pretty much as expected although his specific comments on the housing market may have shocked some. He said effectively that dropping home prices won’t stop the quest to strangle inflation. Property bulls please note.
So, after this latest rate hike, the Fed has now lifted its benchmark rate by 300 basis points, or 3% in just six months as the central bank accelerates policy to restrictive territory with the aim of slowing growth enough to make a meaningful dent in inflation.
“We can’t fail to do that,” he said, referring to the central bank’s mission against price growth. “That would be the thing that would be most painful for the people that we serve. We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t. What we need to do is get rates up to the point where we’re putting meaningful downward pressure on inflation. That’s what we’re doing. We haven’t given up the idea that we can have a relatively modest increase in unemployment.”
But critically, there were no signs of easing its push into restrictive territory as it battles to cool the embers of inflation.
“We’ve just moved into the very, very lowest level of what might be restrictive [territory],” Powell said in the press conference that followed the monetary policy statement. “In my view, there’s a ways to go.”
As a result, the Fed now sees its benchmark rate rising to 4.4% in 2022, above the 3.4% forecast in June, paving the way for further front-loading of rate hikes in the remaining two Fed meetings for the year and into 2023.
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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 alongside 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.
RBA Deputy Governor Michele Bullock spoke today about the review of the bond purchase program (BPP) during the pandemic; and the Bank’s financial statements for 2021/22. The two issues are related because, while the bond purchase program was a policy response to extraordinary economic circumstances, it has had big implications for the Bank’s balance sheet, profits and capital.
The Bond Purchase Program was implemented by the Bank as part of a package of measures designed to provide insurance against very bad economic outcomes as a result of the pandemic. The Bank’s internal review of the program suggests that it broadly achieved its aims.
But one outcome of the bond purchases and other policy measures has been that the Bank will report a substantial accounting loss in its 2021/22 annual accounts, resulting in the Bank being in a position of negative equity. If any commercial entity had negative equity, assets would be insufficient to meet liabilities and therefore the company would not be a going concern.
While the Bank will report a large valuation loss in 2021/22, the government’s debt issuer – the Australian Office of Financial Management (AOFM) – will report a significant valuation gain. For the whole of government, therefore, the Bank’s loss on this part of its portfolio will net off against the AOFM’s gain.
This is a Numberwang like no other!
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Tomorrow the Fed will announce its next rate decision. If its 75 basis points as expected by many in the market, we will probably see little reaction, unless there are some trajectory changing comments in the post announcement press conference. If they do a full one percent that might change the market dynamics. The takeaway is that everyone does expect rates to go up—and by an amount that, prior to the past couple of months, would have been shockingly large.
Perhaps then no surprise that on Tuesday Wall Street ended lower as the eve of a U.S. Federal Reserve, in recognition of the FED’s aspiration to quash inflation, despite economic and market consequences.
One of the main drivers of continued inflation is expectations, which can become a self-fulfilling prophecy.
Expectations are very hawkish, and the Fed can come out just as expected and still be more dovish than expected. That may limit the market downside from this meeting and just may provide some upside going forward.
But then, earnings expectations are falling, and markets remain over-valued relative to the weaker economy, so that may pull markets further down. But I suspect the FED theatre will be a bit of a yawn. At least for now.
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 alongside 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.
Join me for a live discussion about the current state of the markets with Tony Locatro, Perth based Investment Manager with Alto Capital. We will pick apart the latest movements and consider the implications for wealth protection and growth. Tony specialises in the small cap sector.
You can ask a question live.
https://www.altocapital.com.au/
Go to the Walk The World Universe at https://walktheworld.com.au/
Japan’s core consumer inflation rose more than expected to a near eight-year peak in August, data showed on Tuesday, as heightened raw commodity costs and a depreciating yen continued to batter the economy with rising price pressures.
The national core consumer price index, which excludes the price of fresh food but includes energy, rose 2.8% in August, compared to a 2.4% rise in July, data from the Statistics Bureau showed. The figure also came above estimates for growth of 2.7%.
Overall nationwide CPI rose 3% in August, more than July’s reading of 2.6%, and also at an eight-year high. The reading marks the fifth straight month that inflation has trended above the Bank of Japan’s (BoJ) 2% annual target rate and reflects continued headwinds for the world’s third-largest economy.
Go to the Walk The World Universe at https://walktheworld.com.au/