This is our latest weekly market update, starting in the US, UK, then Europe, Asia and Australia, and also covering Gold. Oil and Crypto. A comprehensive round-up of what is happening!
We are, it seems entering the twilight zone, as the scent of stagflation is spreading, as inflation becomes increasingly sticky, especially in services, while growth slows, leading to increased market volatility and questionable consumer confidence. Hopes of rapid Fed rate cuts have receded following a series of U.S. inflation readings.
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Journalist Tarric Brooker and I discuss the latest data, as inflation reasserts itself, and higher for longer seems the play. We discuss the consequences for Australian households, and delve into the charts to understand what is really going on.
Here is the link to Tarric’s slides: https://avidcom.substack.com/p/dfa-chart-pack-26th-april-2024
Here is the link to the recent discussion with Leith van Onselen, which we mentioned in the show. Inside The Property Twilight Zone! https://youtu.be/OxA_G4Fqw5w
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Digital Finance Analytics (DFA) Blog
Does “Burnout Economics” Equal Stagflation? With Tarric Brooker...
The value of stocks are driven partly by momentum, through perhaps we should really call this hopium, as its really investors betting with their gut, and the cold hard realities of financial results. Markets have been leveraged higher by rate cut expectations and the prospects of AI. But when the numbers come in at results time, sometimes hopium goes away. Especially when bond yields take the discount rate higher, (the US 2-year is currently at 4.925 and the 10-year at 4.646) so reducing the future value of earnings.
Australian markets were closed for the ANZAC holiday. We will remember them.
Ahead, Markets were also awaiting more cues on the U.S. economy and interest rates from upcoming data prints. US Gross domestic product data is due later on Thursday, and is expected to show just how resilient the U.S. economy remained in the first quarter.
More closely watched will be PCE price index data- due on Friday. The reading is the Federal Reserve’s preferred inflation gauge, and is likely to factor into the central bank’s plans for interest rates.
As Warren Buffet says, when the tide goes out we can see who is swimming naked. To which I would add, when the tide of hopium goes out, we do indeed see reality below the water line and it may well not be pretty!
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The truth is that recent high rise construction in many Australian cities, are riddled with defects, and someone needs to pay for rectification. This surge in high-rise apartment construction happened as building certification was privatised, costs cut and poorly trained workers employed.
As a result, we have a litany of increased building flaws and quality concerns, such as cracked foundations, water leaks, balcony defects, and flammable cladding. According to the NSW Building Commission strata survey, more than half of newly registered buildings since 2016 had at least one significant issue that will cost an average of $331,829 to correct.
The Strata Community Association NSW found that waterproofing was the most common major issue, followed by fire safety. It also discovered that around one out of every ten buildings had structural and enclosure difficulties, such as roof or facade flaws.
Examples include Sydney’s Opal and Mascot Towers, which were evacuated due to extensive cracking.
Building regulation consultant Bronwyn Weir cautioned that an “enormous” problem had developed whereby “thousands and thousands of apartments have serious defects in their buildings”. “Some of these buildings could potentially be a write-off. We have what is now you know, a systemic failure that is quite difficult to unravel”, she said.
Engineer Leith Dawes warned that purchasing an off-the-plan apartment in Australia had degraded into a game of “Russian roulette” because of the numerous building faults that are frequently overlooked.
Similar structural problems have been uncovered across Melbourne, including leaking buildings, mould, and faulty balconies, Canberra, Gold Coast and many other areas too.
These problems have cost owners and taxpayers millions of dollars to rectify. But the problems are widespread, and many individual property owners are caught in the crossfire.
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Today’s post is brought to you by Ribbon Property Consultants.
Rate cuts anytime this year in Australia, are now hanging by a thread, given the latest inflation data came in hotter than expected, despite the annual rate falling thanks to base effects from months ago, and some changes in the weightings.
The upside surprise came via a smaller than expected fall in utilities, but stronger than expected increases in health, car prices and insurance. Sticky inflation has become a reality, leaving the RBA board’s decision last month to abandon its stated tightening bias looking premature. Most concerning for the RBA will be the surprising strength in trimmed mean inflation, its preferred measure of underlying price pressures, which rose 4%, also higher than forecast and well above the RBA’s 2-3% target.
The ABS reported that the Consumer Price Index (CPI) rose 1.0 per cent in the March quarter, higher than the 0.6 per cent rise in the December 2023 quarter. Annually, the CPI rose 3.6 per cent to the March 2024 quarter. While prices continued to rise for most goods and services, annual CPI inflation was down from 4.1 per cent last quarter and has fallen from the peak of 7.8 per cent in December 2022.
RBA governor Michele Bullock did warn there will be bumps on the journey back to target, and while one quarterly increase in underlying inflation does not mean disinflation is over it is an early warning sign that Australia could be going the way of the United States, where inflation is proving hard to tame. At very least this higher-than-expected result in the first three months of 2024, suggesting price pressures are proving stickier and bolstering the case for the central bank to hold interest rates at a 12-year high.
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Today’s post is brought to you by Ribbon Property Consultants.
Digital Finance Analytics (DFA) Blog
More Inflation Shenanigans: Will The Next Rate Move Be Up, Not Down?
This is an edited version of a live discussion, Adam Stokes, a crypto advocate in which we discussed the recent halving, and what may happen next.
Last weekend marked the highly anticipated Bitcoin halving event, which reduces the supply of new coins. While the short-term impact may be muted, long-term investors remain optimistic due to its historical correlation with price surges. But Bitcoin remains trapped within the consolidation phase that began in March. If a fresh wave of selling erupts due to global events, the critical support at $60,000 will be in focus.
Since last summer, Bitcoin has been heavily influenced by ETF inflows. Investors have placed more than $US12 billion into cryptocurrency exchange-traded funds listed in the United States in the last month alone. Initially, spot Bitcoin ETF anticipation drove the price. Later, the launch of such ETFs accelerated institutional buying, propelling Bitcoin to pre-halving highs. With institutions now holding a significant amount of Bitcoin, any slowdown in ETF sales could delay the halving’s positive impact.
The halving last weekend marked the fourth event of its kind since the first bitcoin was produced on January 3, 2009. Following the halving, the number of bitcoin being “minted” globally each day will drop from around 900 to 450. The price of bitcoin has generally risen after each previous halving event.
Despite tracking sideways for much of the last month, the price of the cryptocurrency is still up more than 50 per cent since the start of the year. That compares to a 5.6 per cent return from the S&P 500 index and -0.1 per cent return from the ASX 200 since January 1.
Once again, our Monday evening chat with property insider Edwin Almeida pulls apart the rubbish being spoken though official channels and gets to the heart of the issues facing property buyers, especially first time buyers.
You could not make this stuff up!!!
Apologies for glitches on the audio tonight, the connection to Edwin was steam powered as we discuss in the show!!!
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Today’s post is brought to you by Ribbon Property Consultants.
The combination of high prices and interest rates is seeing affordability become extremely stretched at a time when cost-of-living pressures more generally are also constraining incomes, according to a recent Westpac Survey.
In response, would-be buyers are pushing the timing of their planned purchases back – less than 10% expect to transact in the next 6mths, the lowest share across all survey waves.
The prospective flow of first home buyers is showing the biggest response to these pressures, planned purchases down materially on last year. Just 2% of those surveyed expecting to become a first time owner in the next year.
Outside of the first home buyer space the story looks to relate more to the interest rate situation. Prospective investor buyers have pared back plans for the next six months.
And sales results for this weekend confirms the slowing market, despite some properties still exceeding reserves in some places. As reported in the AFR, the prospect of interest rates staying high has spooked many buyers, making them less likely to spend above their budgets.
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Today’s post is brought to you by Ribbon Property Consultants.
Digital Finance Analytics (DFA) Blog
Property Buyers’ Plans Destroyed By “Higher For Longer” Rate Trends!
Another crazy week on markets, as geo-political worries collided with the stronger “higher for longer to fight sticky inflation” mantra, and big-tech looking over-valued. The brief latest flare-up in Middle East tensions seemed contained with a flight to bonds, gold and the US dollar waning. Oil fell.
The Dow Jones Index rose 0.6 per cent after Tehran downplayed reports of an Israeli strike on Iran. US Treasury 10-year yields dropped to 4.62 per cent. The US dollar was little changed.
The regional escalation also briefly sent the price of gold back near its record high above $US2400 an ounce and Brent crude rose above $US90 a barrel. Both commodities pared gains after the International Atomic Energy Agency confirmed there was no damage to Iran’s nuclear sites.
As I discussed yesterday, the drumbeat of downbeat comments from the US Federal Reserve and a flare-up in inflation worries have weighed heavily on sentiment, with investors trimming their bets on the keenly anticipated central bank pivot. Federal Reserve officials have said they will need to see more data to become confident enough that inflation is headed to the 2 per cent target before starting to cut interest rates. Atlanta Federal Reserve Bank President Raphael Bostic on Thursday said that if inflation does not continue to move toward the U.S. central bank’s 2% goal, central bankers would need to consider an interest-rate hike.
For some economists, the wont-get-fooled-again mindset is now in high gear. Bank of America economists, for instance, advise that there’s a “real risk” that rate cuts will be delayed until March 2025 “at the earliest,”.
The PCE price data for March US inflation is coming next week. Consensus forecasts are expecting a mixed bag for the one-year change: a slightly higher rise headline PCE to 2.5% and a tick down for core PCE to 2.7%. We will see.
And a sell-off in the so-called “magnificent seven” technology stocks dragged the Nasdaq down 2.05 per cent on Friday and traders remained cautious on riskier assets ahead of the weekend amid geopolitical uncertainties.
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Digital Finance Analytics (DFA) Blog
Grab A Seat Belt As Market Volatility Shakes Confidence And Prices!
It’s become a bit of a ritual, as members of various committees linked to Central Bank interest rate decisions speak in the open spaces between policy meetings. This week, Washington has been the centre of gravity thanks to the IMF conferences.
Markets are hypersensitive at the moment, having been baying for rate cuts all year, and positioning accordingly, despite the data is pointing elsewhere. But now, Money managers and strategists on Wall Street have been forced to rethink their assumptions over the past two weeks in response to strong economic data and remarks by Fed officials.
For example, Federal Reserve Bank of New York President John Williams said that there’s no rush to lower interest rates and economic data will determine the timing.
And Bank of England policymaker Megan Greene speaking at an Atlantic Council event on the sidelines of the International Monetary Fund’s meeting in Washington, said the UK faces difficult trade-offs over whether to cut interest rates because underlying inflation remains high and growth is weak.
But Greene said rate cuts were not imminent and the combination of high inflation and weak growth means “we are sort of in trade-off territory.”
In Australia, after the latest jobs data rate cut expectations are also being pushed out. Andrew Lilley the chief Rate Strategist at Barren joey said “There’s no impetus for the RBA to cut rates as inflation is outside of the 2 per cent to 3 percent band. The RBA will be very comfortable to sit on hold.
But even if rates go no higher, the RBA says total scheduled household mortgage payments (comprising both interest and scheduled principal payments) have increased to around 10 per cent of household disposable income as of December 2023, exceeding the estimated previous historical peak in 2008. These scheduled mortgage payments are expected to increase further to reach around 10½ per cent of household disposable income by end-2024 as more fixed-rate loans expire and reprice at higher interest rates.
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Digital Finance Analytics (DFA) Blog
Markets Rethink Rate Cuts As Central Bank Hawks Jawbone!
