Martin North – Page 13 – Digital Finance Analytics (DFA) Blog

Damp Squib Of A Rate Cut Has Markets On Watch!

This is our weekly market update, designed to help me digest what is happening, starting in the US, probably the most consequential market in the world, then we move to Europe, Asia and end in Australia and also cover commodities and crypto on the way.

On Friday shares on Wall Street were mixed in a narrow range as investors continued to assess the outlook for US interest rates. Why 50 basis points, not 25, and was this a minor course correction, aimed at bringing a soft economic landing, or a sign the FED had left things too long and was trying to head off a lurking recession risk? And was there a hint of political here ahead of the US election? It’s really not clear. And as for that mythical R star – the level at which rate neither detract from, or add to growth, remains like the quest for the holy grail.

One top Federal Reserve policymaker signalled a willingness to cut rates at a fast pace. Federal Reserve governor Christopher Waller told CNBC that “inflation is running softer than I thought”. He’s now estimating that the Fed’s favoured gauge of inflation — the personal consumption expenditures price index — has risen over the last three months at an annualised rate of less than 1.8 per cent, which is below the Fed’s target of 2 per cent.

But separately, Federal Reserve governor Michelle Bowman said she was concerned this week’s 50-basis-point rate cut was “premature”, countering expectations of another similar move anytime soon. “I believe that moving at a measured pace toward a more neutral policy stance will ensure further progress in bringing inflation down to our 2 per cent target.” Bowman dissented at this week’s meeting, the sole policymaker to do so, voting for a quarter of a percentage point reduction instead.

We know the FED will continue to be data dependent and next week’s US data highlight will arrive on Friday with August’s PCE report.

Gold’s reaction to the most-dovish Fed decision in years proved lackluster. Futures were last at 2647.20, up 1.39% across the week. Plenty of traders thought gold would surge after an outsized rate cut birthing a new cutting cycle. And with top Fed officials projecting many more cuts, it is going to be big. Gold did rally initially on that revelation, but quickly reversed into a larger intraday loss. Fed rate cuts are bullish for gold, but speculators’ gold-futures positioning is overextended.

Australian shares scaled another record high on Friday, tracking a global wave of optimism that the US Federal Reserve will deliver a much-hoped-for soft landing for the world’s largest economy. The S&P/ASX 200 Index added 0.2 per cent to 8209.5, the highest closing level in its history. It climbed to an intraday peak of 8246.2 – setting a record for the sixth straight session. On the week, it gained 1.3 per cent.

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Is The Kiwi Property Market On The Turn?

The Real Estate Institute of New Zealand’s (REINZ) House Price Index (HPI) reported a 16.7% decline nationally from the market peak reached in 2021. This has taken real inflation-adjusted house prices back to their pre-pandemic level at the start of 2020.

But in August the Reserve Bank of New Zealand cut the official cash rate by 0.25% and has signalled that significant further cuts would be made over the next 18 month. Business confidence took a leg up, bouncing to a net 51% positive from just 6% in response, banking on the end of the recession which has gripped the country.

Net Migration is also falling away rapidly, according to statistics New Zealand, and we are seeing more property coming on market with inventories up by 30% compared with last year, while sales volumes are down compared with last year and more property being subsequently withdrawn from market failing to find a buyer at their desired asking price.

So net net, it seems likely that as we go into spring and summer in New Zealand, demand might be higher thanks to lower rates but offset by lower migration, while supply is higher but transaction volumes are lower. Which begs the question, are we seeing the property market turning?

Well, the latest report, or should that be marketing document from the REINZ for August shows “signs of increased confidence, optimism and activity compared to the previous year. While the overall sales volume slightly declined, several regions reported notable increases in activity, and year-on-year listing numbers continue to rise”.

All up, its probably too soon to talk about an uptick in property values, but there may well be more property coming on to the market, and an uptick in sales to boot. Further rate cuts will help, and of course the loser regulations on investment property may also assist, but migration driven demand is falling.

Its probably way too early to declare victory, for now. REINZ Chief Executive Jen Baird said August provided a sense of confidence and positivity to the property market. I would remain more cautious. Auckland still seems to be more exposed while some South Island markets though smaller are more positive. And there is considerable uncertainty ahead.

http://www.martinnorth.com/

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The Rate Cut Dance Begins; But You’re Not Invited!

To the surprise of no one the Federal Reserve cut its benchmark interest rate on Wednesday as signalled in my earlier post, and they went for the more aggressive half percentage point. The Federal Open Market Committee voted 11 to 1 to lower the federal funds rate to a range of 4.75% to 5%, after holding it for more than a year at its highest level in two decades. It was the Fed’s first rate cut in more than four years. Governor Michelle Bowman dissented in favor of a smaller, quarter-point cut — the first dissent by a governor since 2005 and the first dissent from any member of the FOMC since 2022.

The impact of the first cut from the FED echoed through global markets. But remember that the FED shift lower to 4.75% to 5% probably won’t impact the Bank of England’s latest rate decision, which will most likely be a hold, following last month’s cuts.

So far as Australia is concerned, the new FED rates are still significantly higher than the RBA’s weak 4.35%, and inflation in Australia is running much hotter as a result. The data flows in Australia also suggests no reason for the RBA to cut anytime soon, as for example the the unemployment rate was steady at 4.2 per cent in August, according to seasonally adjusted data released today by the Australian Bureau of Statistics.

And another data point from the ABS showed that Australia’s population grew by 2.3 per cent to 27.1 million people in March 2024. Our population at 31 March 2024 was 27.1 million people, having grown by 615,300 people over the previous year. Net overseas migration drove 83 per cent of this population growth, while births and deaths, known as natural increase, made up the other 17 per cent.

I don’t thing the FED’s move based on inflation at 2.2% there has much relevance in the short term in Australia. Were it not for the massive flood of migrants and the job creation programmes funded by state and federal government, we would probably be in a recession, and rate cuts would already be in play. But the brutal truth is Government policy is keeping rates higher for longer.

http://www.martinnorth.com/

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Broken City!

Home builders are falling off the perch at an alarming rate with high rates of insolvency among construction firms, many of whom were homebuilders, to 3,000 in the past year. While many of these were small firms, we are still seeing a spate of larger firms going under. We are encountering more people in our 1:1 discussions with people coping with half built projects, no builder to take over the work, rising costs and blown out completion dates. No wonder people prefer to buying existing property.

The latest quarterly data on the value of construction work done also fell by 0.1% over Q2 to be 2.9% lower year-on-year.

More broadly, The Albanese Government is a complete mess on housing with the three bills that comprise its $32bn Housing for Australia plan blocked in the senate. These include The Help to Buy shares equity scheme. The Housing Future Fund equity investment vehicle to build just 13,000 houses per year. And the Build to Rent legislation which is designed to assist corporate to get tax breaks to build and then rent units, probably at higher than market rents. After all they are designed to make profits for those investing corporates and superfunds.

Prime Minister Anthony Albanese has threatened to use the Senate’s obstruction of Help to Buy as a trigger for a double dissolution election. Welcome to that time of the political cycle where we find ourselves burrowing into the election date speculation rabbit hole.

The real fix of course is to cut immigration significantly, as this would ease the rental shortage and lower rental inflation; which in turn would take pressure off the RBA to hold rates higher for longer enabling builders to clear the huge backlog of approvals and easing pressure on households. And on that front, Moody’s says that Australian mortgage delinquency rates, which increased over the June quarter, will continue to rise moderately over the rest of this year as high interest rates and sticky inflation put financial stress on households.

Standing back, the policy errors made by the current government are literally hitting home, and with the prospect of more political tricks on all sides of politics, the real impact on people will continue. They should be held to account for their mistakes.

http://www.martinnorth.com/

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Look Who’s Wealthy Now!

One of the factors I see in my household surveys is wealth transfer from one generation to another, stoked by the paper wealth created by the massive upswing in home prices. We see more first-time buyers being assisted by the Bank of Grandparents, alongside the Bank of Mum and Dad. This means there is a historic wealth transfer is under way in Australia, for those fortunate enough to have parents or grandparents with assets, tough on those with none of those onramps to property and wealth. With a large chunk of that wealth stored in residential property assets, the shift is already reshaping property market activity, and will intensify in the years to come.

In my surveys I encounter a theme quite often, households who cannot get into the property market while their friends and colleagues seem able to do so. So how come some can and some cannot?

Well, it could be that others are simply just better at saving. Hustling. Investing. Negotiating salary. The second: they’ve got a loan of cash injection from the Bank of Mum and Dad or Grandparents (though often its not clear whether they will have to pay it back. And third, they are a beneficiary of the great intergenerational wealth transfer.

Demographic research firm McCrindle just published a report and they say Baby Boomers are passing on an estimated $6.2 trillion of capital to their children and grandchildren.

Since 2013, the percentage of 25 to 34-year-olds who think that Australia is a land of economic opportunity, where hard work brings a better life, has fallen from 80 per cent to 51 per cent. The same trend was observed across all age groups.

“Belief in the fair go … appears to be declining. We estimate that overall agreement that Australia is a land of economic opportunity has declined by 16 percentage points since 2013,” the researchers found.

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Will The FED Stoke Inflation And Drive An Even Greater Wedge Between Rich And Poor?

This is our weekly market update, where we start in the US, cross to Europe and Asia and end in Australia, whilst covering commodities and crypto on the way. I do this to keep track of what is going on in today’s complex markets, so expect lots of data not superficial waffle. You have been warned. If that’s not for you, then look elsewhere for more cute cats!

We are, it seems, at the pointy end of the FED’s decision to cut rates when they meet next week as US shares rallied on renewed expectations that they could opt for a half percentage point cut. Futures have it as 50/50 for a half or quarter point cut, but everyone is now expecting the first of several ahead.

While the renewed hopes for a bigger cut were boosting large cap indexes on Friday the optimism seemed most evident in the Russell 2000 small cap index (RUT), which rose 2.5% on the day and 4.4% for the week. Smaller companies are more sensitive to rate changes as they depend more on borrowed money and floating rate loans.

The Dow Jones Industrial Average rose 0.72%, to 41,393.78, the S&P 500 gained 0.54%, to 5,626.02 and is just 1% shy of its July record while the Nasdaq Composite gained 0.65%, to 17,681.55. The potential for a large rate cut helped drive utilities, materials and industrials higher. Twenty-four of the Dow’s 30 components were higher; Techs mostly lagged.

All three major U.S. benchmark indexes ended close to roughly two-week highs and logged solid weekly gains. For the week the S&P 500 rose 4.02% and the Nasdaq climbed 5.95%, with both marking their biggest weekly percentage gains since early November. The Dow added 2.60% for the week.

European stocks rounded off the week on a positive note, supported by technology, real estate and mining shares, while investors shifted their focus to the U.S. Federal Reserve ahead of a long-awaited monetary easing at its meeting next week. Technology and real estate gave the market its biggest boost, followed by miners that advanced 1.3%, as copper prices hit a two-week high on buying ahead of a Chinese holiday and amid stimulus hopes.

Australian shares extended gains on Friday, but stopped short of a closing high as a drag in banks offset a strong push in mining stocks as commodity prices rose. The benchmark S&P/ASX 200 ended up 0.3 per cent to 8099.9, bringing weekly gains to 1.1 per cent.

http://www.martinnorth.com/

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

Listen, You Can Hear Home Prices Falling!

The mythology that home prices always rise has been busted before, because the high-level indices which are the fixation of the media, ignore the real variations, at a granular level.

The latest data from Corelogic shows that at the aggregate level there were small falls in Canberra, Darwin, Hobart, and Melbourne, while there were stronger rises in Brisbane, Adelaide and Perth (especially Perth) and a small rise in Sydney.

But now, the people at Corelogic who release one of the main indicators of prices included in their Housing Chart Pack, the September ‘Chart of the Month’ which takes a granular look at value falls over the three months to August from a quarterly study of 3,655 suburbs across the country and found that house prices in almost one-third (29.2 per cent) had fallen. In comparison, in the three months to August last year prices had dropped in 17.2 per cent of suburbs. They say that Melbourne (79.1%) and regional Victorian suburbs (73.8%) made up the majority of falls over the quarter. Values also decreased across more than half of the suburbs in Hobart (54.3%), Darwin (51.2%), and Canberra (51.6%), while all suburbs in Perth saw values rise over the quarter.

The company said declines were becoming more common as high interest rates as well as cost of living and affordability challenges continued.

So, what’s ahead then? Well of course this depends on the trajectory of interest rates, remembering that the current higher rates have depressed the typical borrowing capacity of the first-time buyer by as much as 40% from just a couple of years back. Inflation in Australia remains significantly higher than in many other countries, so the RBA is sticking to its view there will be no rate cuts anytime soon.

To try and highlight the potential sensitivities of interest rates, we run three scenarios, and look three years out, to illustrate the sensitivities across units and houses by state.

http://www.martinnorth.com/

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

Controlled! Shut Up, Say Nothing: Obey….

Well now we have next bit of the controlling infrastructure being put in place to control free speech, and perhaps even what we think! The Orwellian nightmare with severe consequences for freedom of expression is being rolled out for all to see.

I have already talked about the dystopian future being drip fed on society, with the removal of cash so financial tractions can be monitored, the introduction of a non-mandatory but effectively mandatory of a digital ID, and of course there is the move to restrict youngsters access to socials.

But now we have the next piece of the puzzle, as Today in Canberra, Minister Rowland tabled the Labour Government’s latest version of the “Combatting Misinformation and Disinformation Bill”.

This bill defines ‘serious harm’ as:
(a) harm to the operation or integrity of a Commonwealth, State, Territory or local government electoral or referendum process; or
(b) harm to public health in Australia, including to the efficacy of preventative health measures in Australia; or
(c) vilification of a group in Australian society distinguished by race, religion, sex, sexual orientation, gender identity, intersex status, disability, nationality or national or ethnic origin, or vilification of an individual because of a belief that the individual is a member of such a group; or
(d) intentionally inflicted physical injury to an individual in Australia; or
(e) imminent:
(i) damage to critical infrastructure; or
(ii) disruption of emergency services; in Australia; or
(f) imminent harm to the Australian economy, including harm to public confidence in the banking system or financial markets; that has:
(g) significant and far-reaching consequences for the Australian community or a segment of the Australian community; or
(h) severe consequences for an individual in Australia
If the platforms do not silence the above content, they could be slapped with a range of penalties, including a maximum fine of 5 per cent of their global revenue. That’s a very big stick which will undoubtedly result in algorithms which silence a large amount of factual content.

Frankly, in the light of this, my ability to analyse and yes criticise Government Policy, Monetary Policy or even economic analysis more generally could be caught in the draconian umbrella. Even reporting on financial pressures on households could be caught. My voice would be silenced online and the government talking points would continue to spread unchallenged.

Then just add the Central Bank Digital Currency into the mix, the total control by Government is complete. This is anti-democratic nonsense and needs to be stopped. Before its too late, if its not already!

http://www.martinnorth.com/

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