Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
My latest Friday afternoon chat with Journalist Tarric Brooker. We look at the latest charts, and discuss where things are going.
You can see the charts here: https://avidcom.substack.com/p/charts-that-matter-28th-october-2022
Tarric’s upcoming event is here: https://cloud.go.pepperstone.com/pepp-talks-melb-nov-2022
Go to the Walk The World Universe at https://walktheworld.com.au/
The news continues to confuse, as Wall Street contended with another volatile session. Investors mulled the Federal Reserve’s path of interest-rate hikes while assessing mixed economic data and a slew of earnings reports, whilst the ECB doubled official deposit rate, and Credit Suisse revealed their plans to revamp their business.
At the end of the day, the Dow closed higher on Thursday, as a rally in Caterpillar and Boeing cushioned the rout in tech after META delivered disappointing quarterly results. The Dow Jones Industrial Average gained 0.61%, the Nasdaq was down 1.6% and the S&P 500 fell 0.55%. The S&P 500 closed lower, after swinging between gains and losses for most of the session.
The big news was Meta Platforms which fell nearly 25% after reporting third-quarter results that missed on the bottom line and were an “absolute train wreck,” according to Wedbush.
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
The latest from our property insider, Edwin Almeida, as we look at the latest property listings, the China factor, and sub-room divisions. https://www.ribbonproperty.com.au/ Go to the Walk The World Universe at https://walktheworld.com.au/
The RBA has lifted the cash rate by 2.5% and more rate hikes are expected in the months ahead as they try to head off inflation. The budget on Tuesday is expected to show inflation is expected to peak at around 8%, but stay above their target range of 2-3% right into 2024, with no real wages growth in the immediate outlook.
One factor which is being debated is the potential impact of home prices across the country, as we see higher cash rate costs translate into higher mortgage rates and lower borrowing power. The RBA recently showed a reduction of around 20% could be on the cards, though my analysis and conversations with prospective borrowers suggests that some are seeing their ability to borrow on the same set of income and expenditure parameters falling by as much as 30%.
And as I need to keep reminding you, availability of credit is the single most powerful influencer of home price moves. If you cut rates, and allow borrowers to leverage up with greater borrowing power, prices will rise, but on the other hand, if rates rise and borrowing power will fall.
Which then takes us to the question of what the direction of travel on home prices is expected to be.
Again those following my analysis will know we run three scenarios, a Best case, which assumes rates drop mid next year as inflation is conquered and wages rise – now largely discounted by the latest coming from Treasury around the budget, a Base case, which assumes higher rates through next year and beyond, inflation start above target into 2024, and no real wages growth, but no local recession, despite recessions appearing in Europe and possibly the US; and a worse case, where we get into recessionary territory here, causing rates to go higher initially, then fall back later as the RBA tries to dial back its over tight stance.
When I last ran my model, we suggested a base case fall in average house prices would fall by over 20% in the next couple of years, while Units, on average would fall by a little less because their run up in the past couple of years (driven by ultra-low rates and stimulus) was a little less. And I should say these are national averages, there are different outcomes across individual states and post codes, as well as property types. Check out our other shows for more granular information on this, or our Patreon programme to get the underlying data.
But our central view is a significant drop, which by the way will hardly be offset by higher migration, and additional Government incentive programes. Availability of credit is the main driver as I have explained.
Which takes us to the RBA. Now, on Friday there was a very interesting FOI release from the RBA. I will put the link in the comments below.
The request was for “documents from 1 May to 30 August 2022 about the impact of interest rate increases on the Australian property market (including any of: how far prices could fall under various scenarios; impacts on consumption and/or wealth effects; impact on construction employment and/or other related employment).”
Go to the Walk The World Universe at https://walktheworld.com.au/
In this week’s market review we highlight once again the volatility in the markets. The fear gauge in the US is sitting at around 30, and still signals more uncertainty ahead. It is worth remembering that such massive swings are being harvested by the algo’s and big financial players who are able to trade on them, and which in turn help to exacerbate the moves. Such large swings are not a sign of a well-functioning market, more a sign of the how close to chaos we are. And as normal we will start with the US, look across Europe and Asia and end in Australia.
Equities have been under pressure this year as the central bank has embarked on an aggressive rate hike path as it attempts to reign in stubbornly high inflation, increasing worries of a policy error that will send the economy into a recession.
The latest edition of our finance and property news digest with a distinctively Australian flavour.
Go to the Walk The World Universe at https://walktheworld.com.au/
New Zealand Household Finances Are Being impacted by the change in interest rates and falls in property prices as inflation continues to bite. The trouble is though these aggregate numbers do not really tell the true story. Whilst we do not run our surveys in New Zealand, we think the parallel with Australia would tell us that the rule of thirds applies. One third of households are under severe financial pressure, one thirds have no issues at all and are enjoying strong income growth and buffers and one third is in between, but slipping towards pressure as interest rates continue to rise, putting upward pressure on mortgage repayments and rents, and downward pressure on home prices and savings.
However, Stats NZ said The net worth of New Zealand households fell $88.9 billion, 3.7 percent during the June 2022 quarter. The June 2022 quarter decline is more than twice the $40.1 billion fall in the March 2022 quarter. The two consecutive quarters of declining household net worth follow ten consecutive quarters of gains.
The latest edition of our finance and property news digest with a distinctively Australian flavour.
Go to the Walk The World Universe at https://walktheworld.com.au/
Once again, volatility continues to surge, as the S&P 500 gave up gains on Thursday driven by rising Treasury yields despite the bulk of quarterly results suggesting corporate America is in better shape than feared. Recession fears are growing. More broadly the stresses and strains are showing across UK Politics, Oil, and Investment Banking, so we will touch on all these in today’s post.
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
The latest data from New Zealand, the UK and Canada highlights how embedded higher food prices are, something which also came through in recent ABS figures.
Even if petrol prices slide a little (and OPEC+ is trying to reverse that), many households will be wilting under the pressure from everyday costs of living.
And it’s worth noting there are various adjustments to inflation metrics which seem to drive them lower – I wonder why?
Go to the Walk The World Universe at https://walktheworld.com.au/
The ABS data today was a bit of a shock, compared with expectations, as the data indicated a slowing of the employment market. Some of this could be just a Numberwang though.
https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/sep-2022
Go to the Walk The World Universe at https://walktheworld.com.au/
Latest US data shows housing starts is falling, as mortgage rates rise. One reason what the markets slide on Wednesday. Ahead, expectations of future earnings are down – just another reason to expect weaker markets, as bond yields continue to track higher.
The latest edition of our finance and property news digest with a distinctively Australian flavour.
Go to the Walk The World Universe at https://walktheworld.com.au/
