Martin North – Page 17 – Digital Finance Analytics (DFA) Blog

Australian Employment Booms Even As Unemployment Rises!

You have to ask the question: are the ABS stats on employment, which were released today, meaningful? Because according to the data for July, a record share of Australians are either working or looking for a job and about 58,000 people found work last month. The increase in employment was not enough to stop the jobless rate from rising to 4.2 per cent last month from 4.1 per cent in June, (though less than 1% on a two decimal rounding) as the share of the working-age population with a job or looking for one climbed to a record high of 67.1 per cent.

This was better than market expectations for gains of 20,000 and accorded with the RBA’s view that the labour market is cooling, but only very gradually, so it appears to show its holding up in the face of a rapidly cooling economy. This will keep pressure on the Reserve Bank of Australia to maintain high interest rates.

The first question of course is where did all if the extra workers come from? Perhaps the mega high immigration where the influx of migrants, who are relatively likely to work, helps to explain the data, as well as financial pressure on local workers to grab more work, and multiple jobs to try and make ends meet. There is no good analysis to split these two factors apart, perhaps surprisingly, or perhaps not! But we know multiple job holders continues to rise.

Across the states, Victoria had the highest unemployment rate of 4.6% in seasonally adjusted terms. Western Australia had the lowest at 3.7%, reflecting the very different economic stories across the states. The participation rate was highest in the NT and ACT, at 73.6% and 72.9% respectively and lowest in Tasmania at 60.3%.

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.

Kiwis Get A Rate Cut As The Reserve Bank Pivots!

Interesting question, who you believe more the markets, or Central Bankers. Of course those in Central Bank land, will claim data dependence, and moving targets, and as RBA Deputy Governor Andrew Hauser warned recently it’s a risk to listen to “false prophets” on interest rates; and yet after several false dawns, New Zealand’s central bank cut interest rates, embarking on an easing cycle much sooner than previously indicated as The Reserve Bank’s Monetary Policy Committee lowered the Official Cash Rate by a quarter percentage point to 5.25% Wednesday in Wellington.

The RBNZ’s pivot to easing is a rapid change of tune after it said in May it considered raising rates and wouldn’t cut them until the second half of 2025. The bank’s concerns over sticky domestic inflation are being alleviated as the economy teeters on the brink of its third recession in less than two years and unemployment rises. The RBNZ’s new forecasts show the OCR falling further in the fourth quarter and by about 100 basis points by the middle of next year.

So will the RBNZ’s move influence Australian interest rates. Probably not because inflation in Australia is way worse, and Government spending and support significantly higher. RBA governor Michele Bullock last week ruled out the prospect of rate cuts this year. But the RBA’s significant lag in monetary policy will catch up to the Australian economy as it has done in New Zealand.

Generally, I think Australia will see rates higher for longer because of poor Government policy, as I discussed in yesterdays live show with Leith van Onselen. But the rate trend will be lower ahead, but not back to close to zero, which was in its own right a policy error and helped to fire up inflation in the first place. At least Kiwi’s can breath a little easier, though you can probably thank lower migration for that – Australia please note!

http://www.martinnorth.com/

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

After The Perfect Storm, How’s The Market Wreckage, And What’s Next?

This is our weekly market update, where we start in the US, go across to Europe and Asia and end in Australia, covering commodities and crypto on the way. And which ever way you look at the past week, it was a volatile perfect storm driven by weird US jobs data, Middle East tensions, and Japan’s policy shift which together managed to ignite global market chaos. Ahead, I think traders need prepare for an extended period of uncertainty and volatility.

They continue to swing from one side of the deck to the other, as Investors over-reacted swiftly and decisively, dumping stocks in a classic risk-off maneuver, from a far weaker-than-expected Nonfarm Payrolls (NFP) report but then ran back, on slightly stronger data a week later. Many economists reckon the reaction to the data was overblown given the numbers may be skewed by immigration and Hurricane Beryl and better-than-expected jobless claims data on Thursday also supported that view, sending stocks rallying.

The market panic that began in the U.S. quickly spread to Asia, with Japan bearing the brunt of the sell-off. The Nikkei 225, Japan’s benchmark stock index, suffered its most catastrophic decline since the infamous Black Monday of 1987, plunging by a staggering 12% within just six hours. The Japanese yen surged in value by over 10% in less than a month, triggering stop orders and forcing numerous macro hedge funds to liquidate their long USD/JPY positions. Thus, the unwinding of the yen carry trade triggered a vicious cycle of selling pressure, which spread into other markets. But then we got a pull back from the BOJ on potential rate hikes and on Tuesday, S&P 500, Nikkei 225 and bitcoin reversed to the upside and a sense of normalcy started to returned to the markets.

The VIX, which had traded roughly between 12 and 20 for most of the year until last Friday, surged to above 65 — a level associated with outright investor panic (but note the VIX futures did not), and commentators like former Treasury Secretary Lawrence Summers suggests there are technical issues with the VIX, “My understanding is that because there are some illiquid instruments that go into the calculation of the VIX, the VIX had a somewhat artificial move on Monday,” Summers told Bloomberg. “Since that is so widely watched an indicator, issues of liquidity, issues around how it settles, I think should be studied by the relevant parties in the industry and the regulator — the SEC.” The VIX closed down 14.4 per cent to 20.37 in Chicago on Friday.

Investors also await next week’s readings on U.S. consumer prices and retail sales for July, which could provide fresh evidence on the chances of a soft landing for the American economy.

http://www.martinnorth.com/

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

Who Killed The Australian Dream? With Elisa Barwick

In today’s deep dive, Elisa Barwick from the Australian Citizens Party shares her research on why housing has become so expensive, and what can be done about it. But this is not the normal discussion of high migration or currently government policy, rather it sheets the cause to a chapter of history dominated by neo-liberalists, austerity and the rise of technocrats who still now dominate our lives.

Links to Elisa’s research:

https://citizensparty.org.au/sites/default/files/2024-07/neoliberalism-home-ownership.pdf

https://citizensparty.org.au/sites/default/files/2024-05/hijacking-australian-banking.pdf

https://citizensparty.org.au/sites/default/files/2024-04/kennett-austerity.pdf

https://citizensparty.org.au/sites/default/files/2024-01/austerity_series-sm.pdf

http://www.martinnorth.com/

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

When Things Don’t Add Up At The RBA

The Reserve Bank held its cash rate at 4.35% for a sixth straight meeting on Tuesday and lifted its forecasts for inflation and economic growth. In her press conference after the policy decision, Governor Michele Bullock said there’s still a risk that inflation will take too long to return to target and said it’s too early to be talking about imminent easing. Core prices at 3.9% remain well above the bank’s target and its largely driven by non-discretionary spending such as insurance, education and housing rent.

It now sees underlying inflation easing to 3.5% by the end of this year, and then hitting 3.1% in mid-2025. The gauge is seen falling just shy of the 2.5% target mid-point at the end of the forecast horizon.

The governor did tell reporters that the board discussed a hike before deciding to pause again and said a tightening couldn’t be ruled out due to upside risk to inflation.

But as governor Bullock delivered her comments and answers at Tuesdays press conference, it became clear there are disconnects between inflation in Australia and other countries, a divergence between the bank and markets about the future trajectory of interest rates, a revision to how restrictive current interest rate settings are in Australia, and a problem with the impact of Government “support” in its broadest sense estimated to be circa $40 billion across federal and states, plus the tax cuts.

http://www.martinnorth.com/

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

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

This is an edited version of a live discussion with Head of Investments at Walk The World Funds and Nucleus Wealth, Damien Klassen as we dive into the current market chaos and explore what is really going on. Is this a replay of the DotCom bubble, or a minor glitch, and where will the markets pivot to next?

http://www.martinnorth.com/

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