Economic Data – Page 4 – Digital Finance Analytics (DFA) Blog

Markets Duck And Cover As Normality Is Destroyed!

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 on the way. This is a data rich tour as stocks finished lower on Wall Street but edged higher in Europe on Friday amid uncertainty about U.S. President Donald Trump’s rapid policy initiatives, including spending cuts and tariffs, and Germany’s upcoming elections. Oil prices settled down more than 2% while gold eased from record highs.

The Global MSCI index was down 1.04% on Friday, but MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 1.35% to its highest since November 8 and gained 1.47% for the week. The S&P 500 shed 1.7 per cent at the closing bell. The NASDAQ Composite slumped 2.2 per cent. The Dow Jones tumbled 1.7 per cent as twenty-three of the Dow’s 30 components fell, paced by United Health, Nvidia and Amazon. Crypto stocks sank after Bybit reported a hack with estimated losses of $US1.5 billion. Coinbase fell 8.3 per cent and Robinhood fell 8 per cent. The CBOE Volatility Index, which measures the implied volatility of S&P 500 options, was up 16.28% to 18.21.

The S&P/ASX 200 fell 0.3 per cent, and retreated 3 per cent since it closed at a record high last Friday. However, In Europe, shares have been volatile this week ahead of Germany’s election on Sunday, while talks between the U.S. and Russia on ending the war in Ukraine helped underpin a surge in European shares to record highs earlier in the week. Europe’s broad STOXX 600 climbed 0.52%, reversing two days of declines. It ended the week up 0.26% and the Hang Seng in Hong Kong lifted 3.99% on Friday. Investors piled into emerging market countries’ debt to the tune of $45 billion and bought up $2 billion of Chinese stocks in January, a closely followed report from the Institute of International Finance showed on Tuesday.

We could well be in the midst of a rotation to European and Emerging Markets and away from the over-valued US market, but given the sky-high level of uncertainty now exposed for all to see, we should expect more volatility, and we do risk dropping into correction territory in coming weeks.

Investors, as opposed to Traders might want to take risk off the table as the waves break over the assumptions many have about how the world works. As I will discuss on my upcoming Tuesday Live show, we are entering an era of global disorder, where powerful but transactional players try to rule the roost. And in so doing things will get broken, and markets disrupted, big-time.

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Kiwis Get Another Mega Rate Cut, As Inflation Sits In Band!

Would you prefer to be living in New Zealand or Australia? The New Zealand story on monetary policy and home prices is a million miles away from the RBA’s approach of keeping rates lower, to protect jobs even if inflation remains above target.

Across the ditch the Reserve Bank’s approach of “no regrets”, took interest rates much higher, lifted unemployment and pulled home prices lower, and because of the more aggressive action appears to have left the land of the long white cloud better placed in the months ahead.

The New Zealand Monetary Policy Committee this week agreed to lower the Official Cash Rate by 50 basis points to 3.75 percent.

The RBNZ have been cutting for a while and and house prices haven’t been rising. The 40% run up in prices over the pandemic has been followed by the sharpest price crash in generations. Even so, price-to-income ratios remain elevated relative to historical experience, especially given the current interest rate settings. Whilst median home price to median household disposable income are coming down, we are still around 10 times in Auckland, and over 8 times nationally.

So standing back, the different path between the Central Banks of Australia and New Zealand really stand out. Which begs the question, is a shorter sharper shock, or a slow grind with no clear way out the better path? And should stronger controls on mortgage lending be imposed to keep home prices under control? Oh, yes and the elephant in the room, should migration be dialled back – as in New Zealand, where Stats NZ reported that 72,000 citizens left the country while just 24,900 arrived, and the overall net loss of citizens in 2024 is the largest in a calendar year – or should migration still be pushed hard, despite the rhetoric as in Australia? Frankly to me on so many fronts New Zealand seems in better if imperfect hands than Australia!

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Australian Jobs Up, Unemployment Up, But What’s Under The Hood?

The RBA adjusted down their expectation of the level of unemployment across Australia to 4.2% this week, a level which they expect to remain unchanged for at least two years. Then today we got the latest from the ABS on this frankly fuzzy series of data which showed that the seasonally adjusted unemployment rate rose by 0.1 percentage point to 4.1 per cent in January. 44,000 people found work last month while the number of unemployed increasing by 23,000 people. In short, the jobs market remained “incredibly strong”. That said, some of the increase in unemployment reflected more people than usual with jobs in January who were waiting to start or return to work.

Indeed, the ABS hinted the rise in the unemployment rate in January could reverse in February, saying there were more people than usual with jobs who were waiting to start work last month, but who were technically counted as unemployed.

The employment picture is more complex than might first appear. Given the still high migration levels into Australia, there are more people looking for work, and this is putting the squeeze on some older, perhaps more experienced and therefore expensive locals.

Second, the continued growth of the non-market sector, funded by Governments at federal and state levels means a continued expansion of jobs in specific sectors, like the care sector, but which are not necessarily improving the poor levels of productivity in the economy.

Third as the ABS hints at, the numbers are a bit wobbly given changes to seasonal factors, and also the swapping the sample groups.as well as their strict definition of who is classed as unemployment. Roy Morgan’s alternative method gives a different picture.

Finally, the significant gap between Victoria with unemployment rates of around 4.7%, and other states, suggests that state policy is also important, and on that measure, Victoria is failing again.

Bottom line, overall the jobs market will continue to hold the RBA back from cutting rates again, even if under the hood things are far from rosy. To that extent, words and figures do differ.

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Markets Still Peaking Into Infinite Uncertainty: As Rules Are Broken!

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. This week markets were bullish, with the MSCI global index up 1.7% across the week, and up 0.3% just on Friday. Even the European STOXX 600 which fell 0.24% on the final trading day of the week managed another rise of 1.96% across the week, for a year-to-date gain of 8.82%. Australia’s ASX joined the party with a new high, and up 0.52% across the week.

But why, we should ask? Well, traders seem caught in the Trump announcement blizzard, though some are still asking is the market about to peak? Did DeepSeek mark the end of the AI bullish cycle? Are tariffs about to slash market gains? And is this the time for a Big-Short type of move?

Clearly no one knows – despite all the opinions out there among the talking heads. And frankly, if you are running your investments chasing these headlines, you will probably be in for a rude awakening when the market suddenly flips on its head, as it will at some point, because valuations do not support current levels, period. Meantime rules are being broken.

In the US, the fabled soft landing is morphing into a “no landing” as the 100 basis points worth of interest rate cuts from the Federal Reserve boosts the US economy, and keeps inflation sticky. Further Fed rate cuts are rapidly being priced out for the rest of the year, with just one more expected in December. Some economists are even muttering darkly about the possibility of a rate rise, if Donald Trump makes good on his moving feast of tariff threats. The latest of these would see the US place reciprocal tariffs on any country that currently taxes US goods

Australia’s ASX 200 rose 0.5% to a record high of 8,615.20 points, on gains across most heavyweight sectors. Local stocks were boosted by growing confidence that the RBA will likely cut interest rates by 25 basis points at a meeting next week, and kick off a shallow easing cycle on concerns over a slowing Australian economy. Though its not a done deal, as core inflation remained well above the central bank’s 2% to 3% target range after Government support for households pushed inflation down, at a cost, ahead of the upcoming election.

The RBA will also release new economic forecasts in an updated Statement on Monetary Policy. On Friday, RBA governor Michele Bullock will appear before the House of Representatives Standing Committee on Economics in Canberra. [She also will hold a press conference on Tuesday.]

Not to be outdone, across the ditch the Reserve Bank of New Zealand’s policymakers will meet on Wednesday, and they are expected to approve a third straight 50 basis point cut in the official cash rate.

In Crypto, Bitcoin is still muddling around the sub USD 100,000 level and was last at USD 97,576.

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The Credit Monster Which Is Strangling Australia!

As foreshadowed, housing has become a major battleground for the main parties, as record prices, an acute shortage of rental properties and high interest rates combine to significantly reduce affordability. We know that on an international basis, household debt to income ratios in Australia are significantly higher, than even New Zealand and Canada, who both have severe housing crises. Well, done Australia, a direct result of 30 years of bad policy, and overleverage. And weirdly even now, according to IFM data the surge in average loan sizes is behind the inexorable growth in Australian home prices.

Today I want to look at the latest data on new loans from the ABS, in a release which has now gone from monthly to quarterly, so data released this week covers the October to December quarter 2024. Talk about lagged data! The RBA gross debt levels for January reported a significant uplift, especially for investor loans, as I discussed in a recent post. “Is The RBA Really All In For A Rate Cut In February?”

On the way to this analysis though we need to pause on The Treasurers recent announcement that It will soon become easier for Australians with student loan debt to get a mortgage after Treasurer Jim Chalmers instructed the prudential regulator to relax how HECS was treated when banks conducted mortgage serviceability tests.

So we are seeing mortgage debt ballooning, to the benefit of the banks – see CBA’s recent results. When interviewed conveniently the CEO denied that growth in mortgage lending had any significant impact on house prices. But we know of course the strong credit impulse is one of the main drivers of home price growth, supported by greater demand from high migration, tax breaks for investors (many of whom are losing money on a cash flow basis) and lack of appropriate supply.

The whole housing issue is now an election battleground, with The Coalition opposition promising to allow home buyers to raid their superannuation savings for a deposit, and it has committed to watering down responsible lending obligations.

Both sides have policies which will boost housing demand and increase mortgage debt, driving prices higher. As a result, they would make the affordability situation worse.

Remember the word “mortgage” comes from the Old French phrase “morgage” which translates to “death pledge”. The term refers to the pledge ending, or “dying”, when the loan is paid or the property is foreclosed. Given the longer terms of new mortgages, and the later age of getting one, Mortgage defined as a death pledge has never been truer.

But then does ordinary Australians who want a home have any choice but to play this game? Frankly no, because the game is rigged!

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