Digital Finance Analytics (DFA) Blog – Page 48

More Evidence That Inflation Is Not Playing The Game

Wall Street’s main indexes closed lower on Thursday after a U.S. Treasury auction sent bond yields higher while investors were already digesting data that showed consumer prices rose more than anticipated in September.

After the data, the S&P 500 spent the morning zig-zagging between red and green. It turned decisively lower after a 1 p.m. EDT (1700 GMT) auction of 30-year U.S. Treasuries met weak demand.

US consumer prices advanced at a brisk pace for a second month, reinforcing the Federal Reserve’s intent to keep interest rates high and bring down inflation. Expectations ahead of Thursday’s publication of consumer price index numbers for September were for a continued clear reduction that would eliminate the last concerns that the Federal Reserve would be forced to raise interest rates once more. In the event, the market responded as though it had received a nasty shock, with bond yields surging higher while stocks sold off. An imminent Fed hike still looks unlikely — but evidently, many in the markets were hoping for any such chance to be extinguished.

The number was dominated by housing costs. Shelter inflation, on a year-on-year basis, is still above 7%. The clearest reason for disquietcomes from the “supercore” measure that Fed Chair Jerome Powell has emphasized in recent months — services excluding shelter. This category is heavily led by wage inflation, as labor is a large share of costs for such businesses.

Sentiment reversed after the 30-year Treasury auction, which drew weak demand and weighed heavily on the broader market sentiment. Swap contracts linked to future interest-rate decisions pushed the odds of another quarter-point hike back to about 50%, up from about 30% as recently as Wednesday.

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.

The RBA’s Third Phase Of Tightening, And What Happens Next…

The Reserve Bank of Australia’s (RBA) Assistant Governor (Financial Markets), Christopher Kent, gave an Address to Bloomberg on Wednesday where he expressed why the RBA is reluctant to lift the official cash rate further.

https://www.rba.gov.au/speeches/2023/sp-ag-2023-10-11.html

The RBA is in its “third phase” of monetary policy tightening as it assesses the impact of interest-rate rises to date, he said. The current stage is “an opportunity to see how the economy and how the data is evolving,’’ he said, reiterating that further rate increases may still be needed.

Much of the presentation concerned the lags as monetary policy takes effect. Basically, the RBA expects further impacts on the economy as the lagged effects of the 4.0% of monetary tightening delivered over the past 18 months flows through.

A ‘built in’ monetary tightening in Australia is one reason why the RBA is reluctant to lift the official cash rate further. Australia’s monetary system will tighten on its own as more pandemic era fixed rate mortgages reset from rates of around 2% to variable rates of more than 6%.

But that means those with big mortgages are being worst hit, while others are still enjoying their savings buffers and will continue to spend.

And the question will be, whether the current settings will crush inflation, or whether more rate hikes are needed. As I discussed the other day, there are significant pressures on the RBA to lift further, and some economists are expecting another one or two hikes into 2024.

Either way, there is little rate relief on the horizon for the next year plus.

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.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Edwin understands your needs. So why not engage a licensed professional to stand alongside you. With RPC you know you have: experience, knowledge, and master negotiators, looking after your best interest.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

The Banks Are Winners, And Households The Losers!

A deep dive into the thorny question of the economics of extending the loan term, something which the Bank of England highlighted in its latest report. Who wins (let you guess….)

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.

The Mortgage Stress Default Disconnect

According to the AFR, Australia’s red-hot jobs market is preventing the country’s most indebted borrowers from falling behind on their home loan, as internal Reserve Bank research reveals nearly one in five borrowers may be in mortgage stress.

While unemployment nationally was 3.7 per cent in August, unemployment among homeowners was likely “almost non-existent”.

But markets ascribe a three-in-five chance the RBA board will deliver one more rate rise by the end of the year, amid concerns about persistently high inflation in the services sector and a stubbornly strong jobs market.

Strong employment growth and nominal wage increases have insulated borrowers from some of the financial pain caused by high interest rates.
About 18 per cent of loans across the country have a high repayment burden, defined as spending more than 30 per cent of household income on paying down a mortgage, according to internal RBA research released under Freedom of Information laws.

http://www.martinnorth.com/

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

Bond Market To RBA: Put Rates Higher!

A surge in long-term bond yields has driven both the Australian dollar and the local sharemarket to an 11-month low earlier in the week, and may force Reserve Bank of Australia governor Michele Bullock to deliver further cash rate rises, economists say.

Adding to expectations that the RBA may deliver one further interest rate rise is an increase in long-dated yields, both locally and abroad.

Long-term US bond yields have galloped higher since July alongside strong economic data and an unexpected increase in planned bond issuance to finance the US government’s yawning budget deficit, which Fitch expects to be 6.3 per cent of GDP this year.

http://www.martinnorth.com/

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

Risks Build As Bonds Shoot For The Moon…

This has been another crazy week on the markets, as the truth of higher rates for longer has started to permeate not only bond markets, but equity markets too.

And after a stunningly strong U.S. jobs report bolstered the case for more tightening from the Federal Reserve, the U.S. Treasury yield surge that has shaken markets in recent weeks may have further to run.

As I discussed in my last show, US Jobs growth for September nearly doubled expectations as nonfarm payrolls increased by 336,000 for the month, strengthening views that policymakers will need to keep interest rates elevated to cool inflation.

That’s bad news for investors who were looking for a respite from a rise in Treasury yields that has wreaked havoc throughout markets over the past month, bruising stocks, supercharging the dollar and pushing mortgage rates to their highest levels in more than two decades. Treasury yields of course move inversely to bond prices.

The interplay between bearish fractals and potential bullish triggers continues to shape the unpredictable landscape. But we need to watch the unrealized losses among holders of bonds, because at some point the truth will out. And meantime, equities are still priced for a Goldilocks soft landing, which is probably unlikely.

http://www.martinnorth.com/

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