"Intelligent Insight"
Ahead of our upcoming live stream on Tuesday at 8pm Sydney (12th December) I run through our latest analysis based on our surveys, We see that many households are in a pickle with regards to cash flow, and over time this can lead to significant consequences, with defaults expected to rise in the months ahead.
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Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
This is our weekly market update.
As we count down to the end of the year, U.S. stocks closed higher on Friday, with the S&P 500 and Nasdaq notching their highest closing levels since early 2022 and the Dow notched its longest weekly winning streak since 2019.
A robust U.S. jobs report fuelled investor optimism about a soft landing for the economy and so investors pared bets that the Federal Reserve will cut interest rates in March after a Labor Department report showed nonfarm payrolls increased by 199,000 jobs in November, compared with an estimated increase of 180,000.
The unemployment rate slipped to 3.7%, while average earnings edged up to 0.4% on a monthly basis, compared with forecasts of 0.3% growth. The uptick in wage growth, which risks boosting inflation, muddied the optimism for rate cuts, pushing Treasury yields higher, though some economists were quick to downplay the strength of report attributed to the return of employers that were on strike.
“Were it not for the strike, November would have been somewhere around 170k and October would have been around 180,000,” Jefferies said in a Friday note.
Interest rate futures show traders widely expect the Federal Reserve to hold interest rates steady at its meeting next week. However, futures prices now imply traders mostly expect the Fed to start cutting rates in May, two months later than the March meeting many investors had been betting on in recent days.
Treasurer Jim Chalmers confirmed the Reserve Bank of Australia board should aim to return inflation to the middle of the 2 to 3 per cent target band, or 2.5 per cent. Treasurer Jim Chalmers has axed a controversial proposal requiring the Reserve Bank of Australia to give “equal consideration” to full employment and inflation as part of a new agreement that may mean interest rates stay higher for longer.
The backdown followed warnings by the likes of former RBA governor Ian Macfarlane and former treasurer Peter Costello, who said the proposed wording was vague and would make the RBA less accountable for fighting inflation.
IFM Investors chief economist Alex Joiner said targeting the middle of the band made the prospect of a rate cut unlikely until late 2024, given the RBA’s current inflation forecasts do not show it achieving 2.5 per cent inflation at any point in the next couple of years.
Next Tuesday I will be running my live show on Household Financial Stress, which continues to worsen. However, what constitutes “stress” is being debated widely – its a matter of definition.
The RBA has joined the debate, but I will argue in today’s show they conveniently presented a lop-sided story, which understates the true picture.
Andrea Brischetto, Head of Financial Stability gave a speech at the Sydney Banking and Financial Stability Conference, University of Sydney, titled Financial Stability and the Financial Health of Australian Mortgagors.
There has understandably been a lot of focus on this issue of late, with many households facing substantial financial pressures from high inflation and higher interest rates. Some of the households feeling these pressures most acutely are those with lower incomes, including many renters.
But the focus was on households with mortgages and how their financial health relates to financial stability.
There has been a lot said and written about the issue of household financial stress in recent times, using a multitude of data sources and reporting on many different individual experiences. Wednesday’s national accounts showed how inflation, tax and interest rates have weighed on real household disposable income. And as RBA Governor Michele Bullock said when discussing the challenge of inflation following the RBA Board meeting this week: High inflation makes life difficult for everyone and damages the functioning of the economy. It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality. The Governor emphasised that the effect of all of this is that many households are experiencing a painful squeeze on their finances.
So she presented an overall picture of the situation, drawing on the RBA’s extensive work in this area, which is published in detail in our regular Financial Stability Review.
An average of more than 50 UK bank branches have closed each month since 2015 and campaigners fear some retailers could stop accepting cash if it becomes too burdensome to process. That said, under government rules, free withdrawals and deposits will need to be available within one mile for people living in urban areas. In rural areas, where there are concerns over “cash deserts”, where the maximum distance is three miles.
This is important because cash remains a necessity for millions of people, research has found, with the elderly and those with disabilities among those likely to struggle. Branches have been more likely to close in disadvantaged areas.
Of course, Banks have pointed to the large reduction in branch use – a trend accelerated by the Covid pandemic – and the popularity of managing money via smartphones, as good reason for diluting their branch network.
But a recent survey by Age UK suggested that, among those who were uncomfortable about digital banking, the key concerns were fraud and scams, a lack of trust in online banking services, and a lack of computer skills.
And now, The British Retail Consortium says cash use has grown for the first time in 10 years as shoppers keep a close eye on their budgets while prices rise, retailers have said. They said 19% of purchases were made with notes and coins last year, echoing a report by banks showing a slight rebound. That’s up from 15% the previous year. Until 2015, notes and coins were used in more than half of transactions and, while card use now dominated, cash still had its benefits. Consumers made smaller but more frequent payments, the survey found.
The consortium said consumers were budgeting carefully to try to cope with cost of living pressures, and there was also a “natural return” for cash after it slumped during the pandemic.
It is essential use of cash is protected, you cannot leave it to the market, where banks are making a killing from extra fees on card transaction costs as a result of removing access to cash.
A new report has revealed 53 per cent of NSW buildings have had serious defects over the past 5 years, with only half resolved within one year.
The number has risen from 39 per cent in 2021 with the most common defects including waterproofing, fire safety, structural and key services issues such as lifts and plumbing.
The report, by The Strata Community Association (SCA) NSW and the Office of the Building Commissioner, has revealed that more than half of all strata buildings had serious defects between 2016 – 2022, with an estimated $79 million spent by owners corporations to fix the issues.
The average cost of rectifying serious defects was $283,000 per building.
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Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
The Australian Bureau of Statistics (ABS) has released the June quarter National Accounts, which were an unmitigated disaster and confirmed that Australia is in a deep per capita recession.
The economy as measured by real GDP grew by only 0.2% in the September quarter, driven by increased government consumption and capital investment over the quarter and badly missing economists’ expectations of a 0.4% print: Growth over the year was 2.1%, less than population growth over the same period. While the population surge earlier in the year has supported demand overall, it is now rolling over and will not provide the same support in 2024. Or as Luci Ellis, at Westpac put it The Australian economy limped along in the September quarter.
Real per capita GDP has fallen for three of the past five quarters, with the March quarter revised up to flat. Accordingly, GDP per capita fell 0.3% over the year. Expenditure by households was dead flat over the September quarter and would have fallen by around 0.7% per capita. By contrast, growth in both household consumption and GDP over 2023 slowed due to sustained cost of living pressures and higher interest rates. Household consumption would have fallen even further had the savings rate not fallen to just 1.1%, which is the lowest level since December 2007.
The savings rate is now well below the ‘par’ of 6.5% and notionally implies a draw-down on the ‘additional savings’ accumulated during the pandemic – estimated at around $260bn – running at about $12bn a quarter. In total, about $43bn, or 16.5% of this reserve now looks to have been drawn down. Of course these are not equally spread across households, with many now having no buffers at all.
As Westpac put it. the policy drag on Australian households is clearly biting.
This is an edited version of a live discussion with Damien Klassen, Head of Investments at Walk The World Funds and Nucleus Wealth. Markets have taken a new turn over the past month, and expectations of rate cuts are rising, but how robust is this move, and how should portfolios react?
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Caveat Emptor! Note: this is NOT financial or property advice!!
I caught up with Robbie Barwick from the Australian Citizens Party to review the recent hearings into Regional Bank Branch closures, and more broadly about the progress made this year.
We look at the underlying issues which have been brought to the surface through the inquiry, and consider what happens next.
And here is the link to the paper which was discussed in the hearings: https://citizensparty.org.au/sites/default/files/2022-06/aust-hamiltonian-credit.pdf
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Another dose of truth from our property insider, Edwin Almedia. In today’s show we look at the November property price moves, the falling listings, and the claims agents are making for more pay. We also warn about the risks in high-rise apartments, and how to select an agent.
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Go to the Walk The World Universe at https://walktheworld.com.au/
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More evidence from the Senate last week, concerning the impact of bank branch closures. The Small Business Ombudsman calls out what is wrong with the current system, and why small business is being degraded. He makes a strong case for significant change!
This is the fourth segment following the recent hearings in Canberra in the Senate Rural and Regional Affairs and Transport References Committee, on Friday 1st December 2023 and relating to bank branch closures.
https://www.aph.gov.au/News_and_Events/Watch_Read_Listen/ParlView/video/1960695
More to come from these important hearings, which broadened the discussion into issues of policy and strategy.
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Go to the Walk The World Universe at https://walktheworld.com.au/