Digital Finance Analytics (DFA) Blog – Page 19

Markets Discombobulated By Rate Cuts And Mixed Rear View Mirror Data, But Still Bets On AI Growth!

In this week’s market review, as usual we will start in the US, cross to Europe, then Asia, and end in Australia, and in passing we cover commodities and crypto.

I have been highlighting how the data driven approach by Central Banks is a problem, because as new data lands, markets try to respond, making swings in sentiment a core feature of every day.

On Wednesday we got a rate cut from the Bank of Canada, who became the first major central bank among the Group of Seven countries to cut interest rates by a quarter of a percentage point to 4.75 per cent, with governor Tiff Macklem saying if inflation continues to ease, and our confidence that inflation is headed sustainably to the 2 per cent target continues to increase, it is reasonable to expect further cuts to our policy interest rate. Inflation in Canada has slowed this year to hit a three-year low of 2.7 per cent in April. While inflation has stayed below 3 per cent for four straight months, it is still above the central bank’s 2 per cent target.

The BoC joins Sweden’s Riksbank and the Swiss National Bank in bringing down rates and more central banks are weighing rate cuts.

And on Thursday the European Central Bank made a widely expected decision to cut its deposit rate from a record 4% to 3.75% even though inflation remains above its 2 per cent target and recently ticked up. So, the ECB was prepared to cut despite inflation clearly remaining sticky, despite persistent wage pressures and despite some signs the European economy might be improving.

Not only is it one of the very few times that the ECB makes a turn on monetary policy before the Fed, it is also the first time the ECB starts cutting rates after a tightening cycle without facing a recession or crisis. But what’s less clear is what Lagarde does next. Having delivered the historic first cut, she was very reluctant to give many clues on when the next one would be. Watch the data, she said.

And in fact, global stocks pulled back from an all-time high on Friday after surprisingly strong U.S. monthly jobs data dimmed hopes that the Federal Reserve would soon follow euro zone and Canadian interest rate cuts, causing Treasury yields to shoot higher.

So the big question is, with the Bank of Canada cutting on Wednesday night, and Lagarde going on Thursday night, does this give the RBA any more room to deliver the rate cut many Australian households and investors crave? The short answer is no!

The RBA is expected to be among the last central banks to cut rates because the Australian inflation pace is above most major economies. At 3.6 per cent, CPI remains well above the RBA’s 2.5 per cent target and a reason why money markets are only fully priced for an easing in one year’s time.

http://www.martinnorth.com/

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

Financial Pressure Reports: May 2024 – 2. Mortgage Stress

This is the second part in a series of posts which deep dives into our latest survey results, with a focus on mortgage stress.

See the first part, where we describe our approach here: https://youtu.be/3oidJ_XKgAE

If you want details of a particular post code, drop it in the comments below, and I will endeavour to add it to a later show.

The full 2,000 post code series is available by subscription from our Patreon channel below.

http://www.martinnorth.com/

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

Financial Pressure Reports: May 2024 – 1. Overview

This is the first in a series of posts which deep dives into our latest survey results, with a focus on financial stress, which is rising further. This episode provides an overview, subsequent episodes will dive into the details of mortgage, rental, investor and financial stress.

If you want details of a particular post code, drop it in the comments below, and I will endeavour to add it to a later show.

The full 2,000 post code series is available by subscription from our Patreon channel. https://www.patreon.com/DigitalFinanceAnalytics

http://www.martinnorth.com/

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

Toppy Markets Feeling The Pain As More Data Confuses Again…

This is our weekly market update. In this show we look across the market action, starting in the US, then Europe, Asia and Australia and also touch on commodities and crypto, not least because this helps me get my thoughts in order as to what’s really going on. Top line, this past week’s performance on the markets continues to fluctuate as new data emerges, and continues the mix signals we have been seeing all year as central banks remain data dependent.

MSCI’s global equities index staged an afternoon rebound on Friday as investors repositioned for month-end, while the dollar fell with Treasury yields as data showed a modest rise in U.S. inflation in April. After spending most of the session in the red, the MSCI All Country World Price Index turned positive ahead of a rebalance of the index. When Wall Street trading ended, the global index was up 0.57% falling earlier. For the week, the MSCI index was showing its second consecutive decline but a monthly gain.

In the end, on Friday, US stocks were mostly higher late, having reversed a morning swoon, helped by traders truing up on the final day of trading in May, though the tech leaders fluctuated after rallying strongly for most of the last five weeks.

Over the last five days, the Dow Jones Industrial Average continued to show weakness, having at one point slumped by -3.99% to 38,111, a level was last seen at the end of January and at the beginning of May, after which DJIA touched a new all-time high of 40k in mid-May. But on Friday the Dow surged off its early losses to finish 1.51 per cent higher to 38,686.32, its biggest daily percentage gain since November 2023 as month-end repositioning drove a late sharp rally. The S&P 500 gained 0.80%, to 5,277.51 its highly monthly close, and the Nasdaq Composite lost 0.01%, to 16,735.02 having been lower until the final minute of the session. The VIX tumbled 10.71 per cent to 12.92. For the month, the S&P 500 rose about 4.8%, the Nasdaq jumped 6.9% and the Dow climbed 2.4%.

http://www.martinnorth.com/

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

No Homes For You: The Structural Desolation Of Dwelling Approval Falls!

Yesterday the ABS released the latest data on dwellings approved and they fell 0.3 per cent in April, after a 2.7 per cent rise in March, according to the seasonally adjusted data after just 13,078 new homes were signed off for construction.

Looing at the mix, Approvals for private houses fell 1.6 per cent. While approvals for private sector dwellings excluding houses also fell 1.1 per cent in April in seasonally adjusted terms.

In the year to April, just 163,493 new dwelling permits were issued, a level which has been broadly consistent since December as surging home building costs and elevated interest rates batter construction activity. The annual result was vastly outpaced by population growth over the same period, which soared by 626,871 mostly due to surging net migration levels. From July 1, Labor is targeting the construction of 1.2 million well-located homes over five years, requiring a 12 month rolling average of 240,000 new homes.

Aprils figure is well short of the 20,000 homes that need to be constructed each month if the country is to hit the federal government’s target of building 1.2 million new homes in the space of five years, starting in July.

So the chronic housing supply issue will remain a problem and put upward pressure on home prices and rents, leading to higher inflation, and so higher interest rates for longer.

So unless things change, the gap between the supply of dwellings and meeting demand will continue to grow, driving home prices and rents higher, and pushing inflation higher which leads to higher interest rates and mortgage costs.

Step one should be to trim migration meaningfully back to bring the supply and demand back into better balance, remembering that on capita we are still currently building MORE dwellings than other western countries, as I discussed with Tarric Brooker recently. There is a strategic path to tackle the issues we face, but it seems to be politically impossible so more people will struggle to find a place to live – something which should be a basic human right, and a priority for Government.

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.

Gaslighting By The Gas Producers Exposed As Australians Pay!

Australia is paying way too much for its home-grown gas, as the over-exporting of gas has driven East Coast gas prices 400% higher than historical average prices leading to higher inflation and a stalled energy transition. This is a huge impost on living standards via direct bill shocks and spills over to energy-intensive manufacturing, which includes building materials, making the housing crisis even worse.

Yet there’s more as The Australia Institute, an independent public policy think tank based in Canberra, just published a report titled Australia’s great gas giveaway – How Australia gives gas to multinational corporations for free.

In addition to exposing Australians to the full international price of gas (yes gas produced in Australia and shipped off shore by huge international companies) due to stupid Government policy, the Institute says that Australian governments charge no royalties on 56% of the gas that is exported from Australia. Over the last four years, multinational companies made $149 billion exporting gas they got for free.

If royalties had been charged on this gas, at least $13.3 billion in revenue could have been raised.

Australia exports LNG from 10 installations. Six of these projects—four of the five in Western Australia and both in the Northern Territory—pay no state or federal royalties. Australia exports 56% of its gas through these facilities.

Sure, the industry is subject to taxes – which are distinct from royalties – including income tax and the petroleum resource rent tax levied on profits. But Institute said the oil and gas companies should be paying royalties as well as taxes on profits and a failure to do so consistently meant Australians were missing out on a fair return on their resources.

ACT Senator David Pocock said the gas industry was taking part in “state-sanctioned daylight robbery”. “We are seeing a betrayal of Australians and our future by the major parties. We are seeing state capture by the gas industry,” he said. “They are absolute leeches on this country and this has to end.”

http://www.martinnorth.com/

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