Martin North – Page 2 – Digital Finance Analytics (DFA) Blog

Seeking The Bottom, Choppy Waters For Markets Again!

This is our weekly market update, where we start in the US, cross to Europe and Asia and end in Australia, covering commodities and crypto along the way.

World markets on Friday ended another choppy week on an upbeat note as investors pushed aside growing concerns over the global trade war and bought back beaten down stocks, although few will be confident a definitive market bottom has been reached yet. U.S. President Donald Trump’s tariff agenda is very much in place, and markets remain vulnerable to the next escalation in tensions. The lack of any new announcement from Trump on Friday was, for investors, perhaps a classic case of ’no news is good news’.

The U.S. Senate did pass a stopgap spending bill, averting a partial government shutdown, after Democrats backed down in a standoff driven by anger over President Donald Trump’s campaign to slash the federal workforce. After days of heated debate, top Senate Democrat Chuck Schumer broke the logjam on Thursday night, saying that he would vote to allow the bill to advance. Schumer said he did not like the bill but believed that triggering a shutdown would be a worse outcome as Trump and his adviser Elon Musk were moving swiftly to slash spending.

And another dose of good news on Friday came from Germany, where Chancellor-in-waiting Friedrich Merz secured support from the Greens to revise the country’s debt brake and unleash the biggest fiscal package since 1990, proposals that should deliver a massive boost to German and European growth.

But frankly, the broader horizon is filled with dark, ominous clouds, indicated by some key market moves and economic data on Friday – safe-haven demand propelled gold above $3,000 an ounce for the first time, while U.S. consumer confidence fell to its lowest in nearly two and a half years and longer-term inflation expectations hit their highest since 1993.

In a post on X, former US treasury secretary Larry Summer said: “I am convinced there is nearly a 50 per cent chance of recession, and maybe even a far greater risk of recession, unless the current policy approach of tariff threats lurching is altered.”

Although markets clawed higher on Friday, the global MSCI Index was down a further 1.77% across the week, while the European STOXX 600 was down a further 1.22% over the 5 trading days.

In the US, The S&P 500 confirmed a correction on Thursday with the index closing down more than 10 per cent from its February 19 record high amid heightened uncertainty about President Donald Trump’s tariff moves and his determination to revamp the US federal government. That said, U.S. stocks rebounded on Friday as investors hunted for bargains at the end of a tumultuous week. S&P 500 +2.13% Dow +1.65% NASDAQ +2.61%. The S&P 500 and NASDAQ logged their biggest one-day percentage gains since November 6, the day after the U.S. presidential election. It was a broad rally, with recently battered tech-related megacaps enjoying a comeback.

The S&P/ASX 200 closed on Friday with its third-largest weekly loss this year despite a rally in Australian iron ore and gold mining stocks. The index shed almost 2 per cent of its value this week. It closed 9 per cent off its February 14 peak of 8555 points, after hovering at correction levels for days. It rose 0.5 per cent, to 7789.7 – its first day in the green since Monday. But Morgan Stanley has recommended clients avoid Australian equities citing their close correlation to Wall Street after a torrid start of the year for both markets as they hover at or near correction territory.

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Are Investors The Reason Home Prices Are Rising Into Unaffordability?

The trends are clear, in many western countries around the world, home prices have been rising, and in recent years rising fast. The underlying drivers are the freeing up of mortgage markets, and lower interest rates, allowing more people to borrow more, which is why debt has been rising too. As you know I have long argued the rise in home prices to stupid levels is all due to the deregulation of the financial system, driven by neo-liberal thinking which leaves ordinary people in the dust. Greater debt driven demand lifts prices.

Of course, the Government is fixated on the supply side story. And we can expect they will peddle this hard into the election. The government’s housing policies include 1.2 million new homes built by mid-2029, a $9.3 billion agreement with states and territories to support social housing and homelessness services, a scheme to help 40,000 households purchase a new or existing home, and tax incentives to support investment in new build-to-rent developments. One of those latter tax incentives includes increasing the capital works tax discount depreciation rate from 2.5 per cent to four per cent.

The other factor in play is high migration, another demand driver, with another 2 million people expected to land in the country over the next few years. This was subject to interesting questioning from Senator Bragg in Estimates recently. Astonishingly, Treasury has not considered the impact of high migration on housing demand (and implicitly) price.

But what of the tax breaks for investors? Well according to a new report from Australian Council of Social Service (ACOSS), Two tax breaks are “disproportionately” benefiting Australia’s richest while simultaneously fuelling the housing affordability crisis. The report criticises the capital gains tax deduction for property, where only 50 per cent of capital gains made from an asset are taxed when it is sold, and negative gearing, which allows investment expenses to be deducted from income.

ACOSS says the wealthiest 10% of households own two-thirds of all investment properties and are receiving 82% of the $16 billion in tax relief the two breaks provide.

While I absolutely agree the investor tax breaks are part of the problem, unless we address too high migration, control unsustainable lending growth, and also work on building enough new homes to meet new demand, the affordability situation will continue to deteriorate.

As a result, many will choose to leverage up just to get into the market and out of the rental sector. Government policy is at fault here. And they appear to be avoiding the elephants in the room. Address too high migration, and control unsustainable lending growth.

I wonder if this is because many politicians are also property investors?

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Some Green Shoots Midst The Gloom?

The narrative has turned quite negative recently despite the first rate cut in years, thanks to cash flow pressures, the overhang of poor housing affordability, high migration and the tariff wars coming from the US. And yet, if you look closely, there might just be some signs of green shoots. But then you need to ask, is this signal, or noise?

For example, the latest Westpac-Melbourne Institute sentiment bulletin, released today reported a solid 4% rise in March, lifting to 95.9 from 92.2 in February which we note though is still in negative territory, as the survey detail shows the score is still 4% off the ‘neutral’ level of 100, where there are the same number of optimists as pessimists.

The latest ANZ-Roy Morgan Consumer Confidence data showed that Australian Consumer Confidence fell 2.9pts over the past fortnight but is still 1.8pts higher than before the RBA cut the cash rate.

Elsewhere, after last months SQM Research released data showing that the national vacancy rate fell to just 1.0% in January 2025, down 0.1% year-on-year SQM Research’s latest rental vacancy report shows that the national vacancy rate rose to 1.3% in February, to be 0.3% higher annually. Capital city asking rents also rose by 0.4% over the month. SQM Research managing director Louis Christopher was surprised by the result and expects the vacancy rate to tighten in March. He also believes the “country remains in a rental crisis”.

And according to CoreLogic, The rolling 12-month change in national rental values has continued to slow, with rents up 4.1% over the year to February, down from an 8.3% increase seen over the year to March 2024.

So is this signal or noise?

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Losses Ahead: Markets Stress Into Uncertainty As Policy Arena Shifts

This is our weekly market update, where we start in the US, cross to Europe and Asia and end in Australia, covering crypto and commodities along the way. As expected, markets continue to wrestle with mega levels of uncertainty, largely driven by US President Trump as Investors are grappling with dramatic policy change around the world. Trump’s back-and-forth implementation of fresh tariffs on Mexico, Canada and China exacerbated broad concerns about the economy. In another U-turn, Trump decided to exempt products covered by the 2018 United States-Mexico-Canada Agreement (USMCA) from the recent imposition of 25% tariffs until April 2. “The new U.S. Administration’s highly uncertain tariff policy looks to be damaging confidence and impacting activity,” said analysts at ING, in a note.

Under the new Trump administration, the barrage of initiatives on trade and other issues, such as federal workforce cuts, has fed uncertainty for businesses and consumers. Market unease is also rising. The Volatility index jumped this week and was around its highest level since late last year and up 41% compared with the start of the year. “Volatility is here to stay for a while because we do not have economic and trade policy certainty,” said Irene Tunkel, chief U.S. equity strategist at BCA Research.

Markets were also shaken by Germany’s surprise spending plans, which drove a selloff in the benchmark German Bund. The German 10 year rose by 19% over the past week, to 2.835. Beyond that, deep questions about the future of NATO, and Ukraine have forced European nations to reset their defence spending.

Stocks swung wildly on Friday, with the S&P 500 little changed in afternoon trade. Major indexes cut losses following mid-day comments from Federal Reserve Chair Jerome Powell, who told an economic forum that the economy “continues to be in a good place.” Despite that the benchmark S&P 500 marked its worst week in six months. Its down more than 4% from a month ago. The tech-heavy NASDAQ Composite on Thursday ended down more than 10% from its December all-time closing high, confirming it has been in a correction for several months. The Dow is also off highs from last year down more than 3%.

The Global MSCI index rose 0.2% on Friday and was down 1.26% across the week and saw a decline of 5% since its record high on February 18. In contrast the European STOXX 600 was down 0.46% on Friday, and 0.69% from Monday but is still up 9% year to date. But the Australian ASX 200 fell 1.81% on Friday and was down 2.74% across the week and down more than 6% over the past month.

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