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The Migration Question Amplified; But Not Tackled… By Anyone!

Last week Michele Bullock the RBA Governor was asked a good question about how high migration might impact inflation. But her answer was well, weird, as she tried to trade off pressure on the housing market from higher demand driven rent rises against supplying more workers to meet business demand (and implicitly increasing economic activity).

Treasurer Jim Chalmers, Speaking at the National Press Club on Wednesday explained that Tuesdays Budget forecast of headline CPI inflation falling to 2.75% by the end of Financial Year 2024-25 (not I January as I noted some reporting claimed), was predicated on at least in part the government cutting net overseas migration.

“We’re seeing a substantial moderation in inflation in the forecasts and in the last couple of years as well, and that is largely because of how we’re managing the budget but it will also be increasingly about how we’re managing the population as well”, Chalmers said.

Right, so it must also be true that if lower migration will ease inflation, then high migration will drive inflation higher.

Then we got Opposition Leader Peter Dutton’s policy as part of his budget response. He promised that a Coalition government would drastically slash migration as its main way of freeing up more than 100,000 homes over five years. A Dutton government would reduce Australia’s permanent migration program by a quarter – from 185,000 to 140,000 for the first two years “in recognition of the urgency of this crisis”, Dutton said.

Treasurer Jim Chalmers has described the opposition leader’s budget reply proposing migration cuts as an “unhinged and risky rant”.

But again, it’s a battle of announcables, with numbers being banded about. But my take is that neither side of politics are really wanting to take this on seriously, despite the direct link to higher inflation.

In both cases, this is more of policy announcements to try and win an election than nation building policy reform, which is needed for both migration and the gas market.

The net result will be higher inflation for longer, requiring higher interest rates than otherwise needed.

Digital Finance Analytics (DFA) Blog

The Migration Question Amplified; But Not Tackled… By Anyone!

00:00 / 00:17:42

The Employment Numberwang Confuses The Markets Upwards!

Fickle investors are no longer pricing the possibility of another cash rate rise from the RBA after data released overnight showed US inflation cooled to 3.4 per cent in April, putting an end to a three-month streak of hotter-than-expected US CPI data; and the Australian Employment numbers from the ABS peak up to an unemployment rate of 4.1%, from a revised 3.9% last month.

This bad news is good news drove the ASX 1.65 per cent higher today, and the US markets already went into record territory, again on the falling inflation read.

Now I have been highlighting that the unemployment series from the ABS has been unreliable, with significant swings month on month. This time the Australian Bureau of Statistics reported an unusually large jump in the number of unemployed people who were waiting to start a new job, amid broader signs the jobs market remains strong and is easily absorbing a surge in migrant workers on one hand, but we know from other data the number of job opening are falling. About 7.1 per cent of unemployed people last month had a job they were waiting to start, which was a record compared to previous April periods, the ABS said.

Nothing really new here – recall that the in January, unemployment increased to 4.1 per cent due to a surge in the number of jobless people waiting to start work, it fell back to 3.7 per cent the following month when they officially became employed.

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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.

Digital Finance Analytics (DFA) Blog

The Employment Numberwang Confuses The Markets Upwards!

00:00 / 00:09:04

Economic Update For May 2024

This is my edit of the monthly economic chat with Nuggets News, as we explore the latest from the markets, and do a deep dive on the Australian economy after the RBA decision and The Budget!

See Nuggets version at: https://www.youtube.com/watch?v=wQgQEpRnezI

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Digital Finance Analytics (DFA) Blog

Economic Update For May 2024

00:00 / 00:35:18

DFA Live Q&A HD Replay: Investing Now: With Damien Klassen

This is an edited version of a live discussion, in which I discuss the latest from the financial markets with Damien Klassen, Head of Investment at Nucleus Wealth and Walk The World Funds. How have earnings season turned out, and where might the markets go next. How will the tussle between Bonds and Stocks play out?

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

https://digitalfinanceanalytics.com/blog/dfa-one-to-one/ for our One to One Service.

Digital Finance Analytics (DFA) Blog

DFA Live Q&A HD Replay: Investing Now: With Damien Klassen

00:00 / 01:30:24

Budget Smudge-it As “The Announcables” Flow!

The Budget on Tuesday evening comes at an interesting time in the life of the current Government, as well as for ordinary Australians.

With a year or so to go before the next election which must be held by May 2025 at the latest. (or sooner perhaps if Albo sees a window of opportunity) this would normally be a give-away budget to set the scene. Except that with inflation still strong and being driven by local factors such as wages growth and energy costs, as well as high housing costs thanks to very strong migration, the headroom is limited, at best.

The Announcables so far, which have continued through the weekend, are portraying it as a responsible budget aimed at containing inflation, supporting housing, and quote good for women.

Charlmers said this week his goal was to chart “the responsible middle course between those who want us to slash and burn in the budget, and those who think that it should be some kind of free-for-all of spending”.
Others less charitable might say it will contain a wadge of announcables, which sound good, but which are not tackling the real long term issues Australia faces.

Remarkably it seems further tax payer funds will flow to the construction sector. While the Governments goal of 1.2 million well-located homes built in five years starts on 1 July, remember just 12,850 homes were approved for construction in January. This seems a gulf which needs way more than announcables and political party tricks.

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Digital Finance Analytics (DFA) Blog

Budget Smudge-it As “The Announcables” Flow!

00:00 / 00:07:54

Into The Storm: What Next?

This is my weekly market update, starting in the US, crossing to Europe, then Asia and ending in Australia plus commodities and crypto.

An unusually strong solar storm hit the Earth overnight producing northern lights in the US and Europe and southern lights across Australia, including Queensland. Bright auroras were visible at unusually low latitudes. The G5 geomagnetic conditions could potentially disrupt power and communications with warnings to governments and critical infrastructure operators about the potential impacts on infrastructure and essential services.

This reminded me that things can be unpredictable, and markets risk surprises in the weeks and months ahead, as Central Banks, who created the massive inflation storm by their own actions, try to reverse the effects through higher for longer interest rates. Meantime Government debt continues to rise, together with the costs of debt servicing, and many ordinary households are caught in the crossfire. Yet financial markets are still hopeful.

On Friday shares in New York were modestly higher, with techs somewhat lagging. But all three indexes were up for the week with the blue-chip Dow nabbing its largest Friday-to-Friday percentage advance since mid-December. The benchmark S&P 500 index is up over 9% for the year, up near its late-March record high, following a 5% pullback that occurred last month.

The question of how independently will other Central Banks move their base rates ahead of the FED comes more into view. More broadly is the U.S. exceptionalism trade fading?

And what does the demise of Perpetual, like the fall of AMP before it, also tells us about the changing nature of Australia’s financial services sector: the growing scale and power of the superannuation sector; the rise and rise of passive investing and private capital; and the global struggle to make the listed funds management model work?

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Digital Finance Analytics (DFA) Blog

Into The Storm: What Next?

00:00 / 00:22:08

The “Tapping Super For Home Purchase” Conundrum!

Housing affordability is shot, as we have been discussing, thanks to demand stoked by high migration, higher lending multiples as the financial system was deregulation, and higher interest rates mirroring the RBA’s battle to tame inflation. As a result first time buyers are delaying their purchase by several years, and more borrowers are leveraged up to the gills, despite first home grant schemes, and shared equity schemes, which as the Productivity Commission showed did help a few get into the market, but lifted prices for everyone else, so did not help structurally.

Australians are already among the highest carriers of household debt in the world. In fact, according to Domain’s 2024 First Home Buyer Report, an entry-price home in Melbourne costs $678,000. In Sydney, it jumps to $927,250. Looking outside the two major cities reduces the cost to $545,000. To be lucky enough to secure any of these options, a 20 per cent deposit will set you back between $109,000 and $185,000.

So where do prospective buyers get that sort of cash? Well some might be able to get help from the Family Bank, as I showed recently, the average is more than $106,000 now, great if you have wealthy parents. Others may be able to save, but it’s a long road, and whilst interest rates are higher than they have been for some time on deposits, it will take years, and longer still if rates are cut later. Then of course there is the old chestnut, use accumulated super.

This week we got a draft report from the parliamentary committee chaired by prominent superannuation critic Andrew Bragg which has upped the ante on the Coalition’s super for housing policy, suggesting first home buyers should be able to withdraw all their retirement savings to buy a house or use it as collateral to help borrow.

My view is that this is actually a proxy political war on the purpose and nature of superannuation, rather than a real honest discussion about how to fix the broken property market. It is in essence a mixture of misdirection – look over there, not here, and avoid the more critical issues of migration control and increased and better-quality supply of affordable housing. Or in other words, it’s a case of fiddling while Rome burns, again.

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Today’s post is brought to you by Ribbon Property Consultants.

Digital Finance Analytics (DFA) Blog

The “Tapping Super For Home Purchase” Conundrum!

00:00 / 00:17:14

Danger: Inequality Rising!

According to a recent report, Australian capital cities are becoming more segregated along socioeconomic lines. And the trend is worst in Sydney. Inequality is rising.

The Conversation published: Our cities are widening the divide between the well-off and the rest. How can we turn this damaging trend around? Written by three researchers from the University of Sydney.

https://theconversation.com/our-cities-are-widening-the-divide-between-the-well-off-and-the-rest-how-can-we-turn-this-damaging-trend-around-222386

They talked about the so called “latte line”, the infamous, invisible boundary that divides Sydney between the more affluent north-east and the south-west. Historically, people north of the line enjoy better access to jobs and education, and can capitalise on rising property wealth. This has reinforced economic inequality.

Sydney emerged as the most segregated and unequal of the five cities. The latte line is getting stronger. Other cities also showed rising inequality.

Bad policy is creating a more and more unequal society. The traditional idea of Australia as an egalitarian society is dying. The property market is the problem, but Governments are ignoring the consequences, and focussing on “announcables” as we discussed yesterday. We need to do better!

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Digital Finance Analytics (DFA) Blog

Danger: Inequality Rising!

00:00 / 00:10:25

More Housing “Announcables” From The Government…

Those following my regular Property Rants with Edwin will know we have been speculating that there would be budget measures announced next week to help property developers. Well, they could not wait it seems…

The 600,000 plus migrants arriving in Australia this past year are continuing to put more pressure on the housing sector, and helps to explain the fact that rising rents, interest rate hikes and surging living costs in the past few years have inflamed what was already among the world’s least affordable housing rental markets, where record numbers of people can no longer afford to buy after a surge in house prices.

In fact, the federal government wants to find tens of thousands of workers to help build new homes in an attempt to address Australia’s ongoing housing crisis, reacting to pressure from the Construction sector, which already employs about 1.35 million workers across the country.

Of course, the logical step would be to right size migration to match the capacity to build new homes, which with a following wind might be around 150,000 each year. That should be core Government Policy. But no.

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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.

Digital Finance Analytics (DFA) Blog

More Housing “Announcables” From The Government…

00:00 / 00:13:41