In our final Friday afternoon chat, for the year Journalist Tarric Brooker and I look back at 2023, with all its ups and downs, and consider the year ahead, which Schrödinger’s cat like could go down quite different paths.
And we look at the most burning question: When Could Australian Interest Rates Be Cut?
Tarric’s slides and articles is here: https://avidcom.substack.com/p/the-most-burning-question-answered.
Thanks to all those who follow and subscribe, and please like and share the show. We will be back in 2024 for more charts and chat.
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The ABS reported that Household wealth rose for the fourth straight quarter (+2.3 per cent or $339 billion) in the September quarter 2023. What you say, we are not feeling it!
The key of course is distribution across households, and the nexus is property values. The ABS says “Household wealth is supported by house prices which have continued to grow despite increases in interest rates” so that total household wealth was $15.3 trillion in the September quarter, which was 7.0 per cent ($998 billion) higher than a year ago. This was largely driven by residential land and dwellings, which contributed 1.7 percentage points to quarterly growth.
And the growth in household wealth was also supported by seasonal tax refunds coming in at the start of the financial year, with deposits increasing 3.4 per cent ($52.8 billion) over the September quarter.
Deposits into accessible transaction accounts (known as Transferrable Deposits) made up $24.4 billion of this increase, with most going into offset accounts. Another $26.1 billion was invested in high interest Non-Transferable Deposits, including term deposits.
So, if you are in the right cohorts, with savings, mortgage free houses, and other assets, you are doing well, whereas many others are simply not. If you are a renter, or mortgaged up to the gills your wealth could well be minimal, while debts are building. So actually, this a symptom of the building inequality in the system.
This puts the RBA in a tricky position. And in fact, while markets doubt the Reserve Bank of Australia will deliver any more rate rises, with current cash rate at 4.35%, the central bank warned on Tuesday it may need to deliver another cash rate increase if inflation remains too high.
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Prices rose by 3.9% in the year to November, down from 4.6% in October according to data from the ONS today, driven by positive base effects mainly across oil products. Remember that falling inflation also does not mean most goods and services are cheaper, but rather prices are rising less quickly.
That rise compares to a more-than four-decade high rate above 11% reached last year. The last time inflation in the UK was lower than 3.9% was in September 2021 when it was 3.1%. Most economists had expected UK inflation to fall to 4.3% last month. As a result, UK inflation has fallen to its lowest level for more than two years, driven largely by a drop in fuel prices. The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 4.2% in the 12 months to November 2023, down from 4.7% in October. On a monthly basis, CPIH fell by 0.1% in November 2023, compared with a rise of 0.4% in November 2022. Within that energy prices fell, but rent and council tax were higher.
Slowing price rises for food, including staples such as pasta, milk and butter, as well as for household goods were also behind the fall.
But while inflation, which is the rate prices rise at, is now well down from its peak in 2022, it is still almost double the Bank of England’s 2% target.
UK inflation remains higher than in other countries including the US and Germany but the gap is narrowing. The fall to 3.9% in November puts the UK on level footing with France, but ahead of the EU’s average rate of 3.1% and the US’s 2.1%.
The softer inflation data prompted Goldman Sachs to bring forward its expectation for the first BOE rate cut to May from June previously.
Ahead, of course the impact of potentially higher Oil prices thanks to the closure of the Suez Canal for some ships, which have driven oil prices higher, and the removal of Government support for higher power prices might turn the inflation gauge higher in the months ahead. So again, markets are ahead of themselves, it will be some time before inflation is approaching the 2% target.
Despite the recent recessionary news from New Zealand, low consumer confidence and high interest rates with floating rates around 8.63%, the latest ASB Housing Confidence survey shows that “for the first time in eighteen months, more New Zealanders expect house prices to increase than decrease”. Aucklanders continue to be the most bullish in their house price expectations with a net 39% anticipating prices will rise.
They say more bullish housing market sentiment is very much a New Zealand-wide story. All of the regions we survey are anticipating prices will rise by a net margin of 30-40%. While the housing demand/supply balance varies from region to region, other factors are likely to be driving prices higher – the likelihood mortgage rates are close to peaking and the prospect of a more stimulatory government policy regime – are national in scope.
They conclude, “With recent data generally showing prices no longer falling, Kiwis tend to think the housing market has reached a turning point” Despite this, There’s been little change in the net balance of Kiwis who think now is a good time to buy a house, with that figure unchanged at 6%. Still, that’s a far cry from the mood of the market over much of last year, where by a 20-30% margin, respondents felt it was a bad time to buy.
But the key to this expectation is the high migration flows.
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This is an edit of a live discussion with Dr Cameron K. Murray, an independent economist who publishes at Fresh Economic Thinking https://www.fresheconomicthinking.com/. We discussed housing policy and economics in general.
Here is the link to Cameron’s new book, out February 27th 2024 https://www.amazon.com.au/Great-Housing-Hijack-keeping-Australia/dp/176147085X
He recently republished his book from 2017 Game of Mates: How favours bleed the nation as Rigged “How Networks Of Powerful Mates Rip Off Everyday Australians”.
This book will open your eyes to how Australia really works. It’s not good news, but you need to know it.’ – Ross Gittins
‘You’ll be shocked at how far the Mates have their hand in your pocket.’ – Nicholas Gruen
Australia has become one of the most unequal societies in the Western world, when just a generation ago it was one of the most equal. This is the story of how networks of Mates have come to dominate business and government, robbing ordinary Australians.
Every hour you work, thirty minutes of it goes to line the Mates’ pockets rather than your own. Mates in big corporations, industry groups, government departments, the halls of parliament and the media skew the system to suit each other. Corporations dodge taxes, so you pay more. You pay more for your house and higher interest rates on your mortgage, more for your medicines and transport, and more for your children’s education and insurance, because the Mates take a cut.
Rigged uncovers the pattern of political favours, grey gifts and information-sharing that has been allowed to build up over two decades. Drawing on extensive economic research, it exposes the Game of Mates as nothing less than cronyism on a grand scale across Australia and how we have fallen behind other countries in combating it.
A final 2023 chat with Robbie Barwick from the Australian Citizens Party. We look at the RBA’s latest outing on cash usage, the Senate review of the RBA’s independence bill, and the formation of a National Investment entity.
On 7 December 2023, the Senate referred the Treasury Laws Amendment (Reserve Bank Reforms) Bill 2023 [Provisions] to the Senate Economics Legislation Committee for inquiry and report by 21 March 2024.
The critical issue is that the Treasurer is walking back Government’s power to intervene with RBA decisions if they do not agree. This power was put into the constitution years ago but has never been used.
Without it, the Technocrats will be able to take over, and follow the lead of the Bank For International settlements, to the potential disadvantage of ordinary Australians and businesses.
Make a submission to make the case for this power to be retained! The closing date for submissions to this inquiry is 2 February 2024.
More from our Property Insider, as Edwin and I discuss the latest from the markets. The numbers are falling in the approach to the end of the year, significantly. We also look at a prime example of the need to lookout below!
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Today’s post is brought to you by Ribbon Property Consultants.
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If you have savings with a bank in Australia, it is highly likely you are being ripped off. After all, Australian Consumers depend on retail deposit products to conduct their everyday banking, to safely store over $1.4 trillion of their savings and, importantly, to earn a decent return on these funds.
However, as I have been highlighting in recent shows, changes in the cash rate (often referred to as the ‘official interest rate’) via the RBA, and which is the rate paid on lending between banks in the overnight cash market only indirectly affect the cost of funding from retail deposits and the interest rates paid on retail deposit products.
Banks are quick to lift mortgage rates on mortgages, but have been significantly less market driven in terms of deposit rates, with many savers loosing out. Yet relatively few consumers switch deposit products, despite there often being a range of alternative products offering better interest rates and conditions. This loyalty tax means consumers earn significantly less than they should, over all on deposits, which boosts bank profits significantly.
So now the ACCC just completed a report on Retail Deposit Account. They gathered information, and documents on retail deposit products supplied by 14 of the largest banks in Australia. These banks collectively hold more than 90% of household deposits in Australia. This included seeking information directly from these banks as to their retail deposit products and from APRA and RBA, as well as reviewing the information available to the public on the banks’ websites.
The ACCC findings highlights that despite the importance of transaction accounts, savings accounts and term deposits, the ongoing challenges consumers face in searching for, comparing, and switching between products means that consumer engagement with the market for retail deposit products is relatively low. This low level of engagement means many consumers miss out on earning more from their savings.
Widespread strategic and selective pricing also adds difficulty for consumers when seeking to locate key product information and compare market offerings. This lack of transparency may also damage consumer confidence in the market.
Given the range of factors that banks take into account and the strategic pricing approaches they employ when setting their retail deposit rates, the interest rates received by consumers do not automatically follow movements in the cash rate target.
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This past week was a doozy in the markets as the Fed started to flip the switch on monetary policy, which took the markets by surprise. Yields plunged. Stock and bond prices soared. And this time, it’s more than the Magnificent Seven stocks leading the charge.
The Russell 2000 ETF has more than doubled the return of both the S&P 500 and the Nasdaq 100 over the last month. And the S&P Regional Banking ETF, which has taken the brunt of the bears’ ire this year and is still down YTD, has surged ~36% since the beginning of November.
The markets feverish speculation about future interest rate cuts has further loosened global financial conditions, storing up risks for euphoric stock and bond markets if central banks view the easy funding environment as a reason to hold borrowing costs high.
Both Goldman Sachs and Jefferies said long/short hedge funds, which take positions betting stocks will rise and fall, got hit hard after Fed Chair Jerome Powell’s comments on Wednesday.
The investment bank’s global markets team said systematic long/short funds, based on a computer-driven strategy, were down 2.8% on Thursday, the worst single day since at least January 2016.
And in fact on Friday US equities gave back some of their weekly gains while the dollar advanced after New York Fed President John Williams told CNBC it was premature” to be thinking about a March rate cut”.
Williams’ Atlanta counterpart, Raphael Bostic told Reuters he was only pencilling in two quarter-percentage-point rate cuts in the latter half of 2024. Swaps traders were eying as many as six rate cuts for next year.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
On 7 December 2023, the Senate referred the Treasury Laws Amendment (Reserve Bank Reforms) Bill 2023 [Provisions] to the Senate Economics Legislation Committee for inquiry and report by 21 March 2024.
The critical issue is that the Treasurer is walking back Government’s power to intervene with RBA decisions if they do not agree. This power was put into the constitution years ago but has never been used.
Without it, the Technocrats will be able to take over, and follow the lead of the Bank For International settlements, to the potential disadvantage of ordinary Australians and businesses.
Make a submission to make the case for this power to be retained! The closing date for submissions to this inquiry is 2 February 2024.
