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Why Rate Cuts Won’t Come Soon To Australia…

Markets have reduced their expectation of a cash rate cut this year following key data at home and in the US suggests both economies were still on solid footing despite elevated inflation and decade-high borrowing costs. Now Australian money markets are no longer fully pricing in an interest rate cut this year, implying an 85 per cent probability of an easing, against 118 per cent on Tuesday.

Actually, in Australia, money markets are pricing in two to three rate cuts by early April and this dialling back came after the monthly consumer price index indicator for July, released on Wednesday, beat analysts’ forecasts by rising to 3.5 per cent, against 3.4 per cent expected. The outcome added to the case for the cash rate to stay on hold in coming months.

Then on Friday, data showed retail sales in July were unchanged, following a 0.5 per cent lift in June. While the reading missed forecasts of a gain of 0.3 per cent, it also came after two months of strong gains, potentially in anticipation of tax cuts which kicked off on July 1.

Overall, it seems we are caught in this higher for longer rate cycle much longer than many expected, and the expectation of cuts in the next few months are unlikely to eventuate, black swan event excepted. The likely inflation pulse from too much Government spending and badly targeted “support” suggests our inflation battle is far from being over, even as growth will come in weak on 4th September when the National Accounts are released to June 2024.

For households and businesses on the sharp end of all this, its bad news, but is should also question those in positions of power, as Governments, Central Bankers and perhaps even markets have lost the plot.

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Digital Finance Analytics (DFA) Blog

Why Rate Cuts Won’t Come Soon To Australia...

00:00 / 00:13:07

Markets Gain Ground Despite Choppy Trading!

This is our weekly market update, where we start in the US, cross to Europe and Asia and end in Australia. And let me say this is a calm and methodical summary, not a shouty content light thing which might be all the rage on some social media, but which for me does not cut the mustard, as I use this to help me understand what is really going on.

Well riotous August ended with global stocks edging higher in choppy trading on Friday, making it the fourth consecutive month of gains. MSCI’s world share index rose 0.77%, for a 2.40% monthly gain. This despite some questions over AI leading to a broadening of interest in other sectors, a bout of heavy selling in early August, and more support for gold as a safe haven. All this despite U.S. economic data that helped the dollar snap a weeks-long losing streak. US markets will be closed on September 2 for the Labor Day holiday so we can expect rudderless trading on Monday.

The S&P 500 ended the final session of the week higher, with a late spike, as the latest batch of data pointed to an ever-resilient US consumer, potentially slowing the pace of rate cuts. The benchmark S&P 500 closed August with a 2.3 per cent gain for the month. It’s now up 18.4 per cent so far this year and is within 0.4 per cent of the all-time high it set in July.

In Europe the Stoxx index closed up 0.09% after touching a record intraday high while Britain’s FTSE index hit over a three-month high on Friday, clocking gains for the topsy-turvy month, with real estate shares in the lead as interest rate-cut hopes held firm, while energy shares tumbled on demand concerns, capping intra-day gains. It still registered its second straight monthly gain and third consecutive weekly advance.

In Asia, Asian stocks rose on Friday as technology stocks recovered from Nvidia-induced losses, while month-end bargain buying saw Chinese shares rebound from more-than six-month lows. But most regional markets were still headed for a loss in August, as they struggled to recover from debilitating losses clocked at the beginning of the month.

The Australian share market finished near a record high on Friday, as higher oil prices and a final flurry of better than expected results from earnings season helped secure the benchmark’s third straight week of gains.

But once again, more questions than answers.

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Digital Finance Analytics (DFA) Blog

Markets Gain Ground Despite Choppy Trading!

00:00 / 00:27:50

The Latest Inflation News Says We Still Have A Problem!

The RBA has said that the battle to control inflation is not yet over, and the latest data from the ABS, the monthly CPI report for July came out today and confirms that inflation does remain a problem. The monthly Consumer Price Index (CPI) indicator rose 3.5 per cent in the 12 months to July 2024, down from 3.8 per cent in June. The annual trimmed mean movement was 3.8% in July, down from 4.1% in June. But still well above the target range.

The monthly indicator is not as reliable. It covers only about 60 to 70 per cent of household items in the quarterly basket of goods and services. Moreover, the composition of measured items jumps around between being more heavily skewed towards goods in some months and more towards services in other months, making it harder to get an “apples with apples” comparison on prices.

The accumulated price increases in the past 3 years or so remain much higher than Income growth, so as my surveys show, many households are under significant financial pressure. A slowing in the rate of growth frankly is largely symbolic, we are not seeing much price deflation at all.

The extended and expanded Commonwealth Energy Bill Relief Fund rebate, and the introduction of State government rebates, have begun to take affect from July 2024. These rebates have the effect of reducing electricity costs for households, but of course the RBA is looking through this short-term support when assessing monetary policy. The rate-setting board left the benchmark at a 12-year high of 4.35% three weeks ago, saying it remains vigilant to upside risks for inflation.

With the data unlikely to sway the Reserve Bank from its hawkish stance, the yield on policy sensitive three-year notes climbed to 3.54% while the local currency rose as much as 0.3% to erase its year-to-date loss against the greenback. Money markets are still pricing in a rate cut in December.

Broader federal and state government spending has forced the RBA to delay by six months the expected return to inflation to the midpoint of the 2-3 per cent target to late 2026. Hence, governor Michele Bullock doesn’t expect to be cutting interest rates this year.

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

Digital Finance Analytics (DFA) Blog

The Latest Inflation News Says We Still Have A Problem!

00:00 / 00:08:45

The Mortgage Stress Pigeons Coming Home To Roost!

Those following the DFA channel will know we have been tracking the rise of mortgage stress in recent times, as the higher interest rates and prices bite while real incomes stalled. I have been listing some of those post codes, like Liverpool in Sydney or DonnyBrook in Melbourrne, where we have been measuring cash flow pressures on households building.

Of course, the banks have been extending and pretending, offering households the chance to extend the term of their loan, or go interest only for a period. Initially people who were over committed reached for this lifeline, but as the recent ASIC report said, this often just put off taking hard decisions about selling up while you can. Many households are making this call now, and I expect property listings to rise in the months ahead as a result.

However, up to now the number of mortgagee sales has been very low, first because of the extend and pretend strategy, second because some households do decide to sell before they are forced to and thanks to recent price rises get to replay the bank and move on. But eventually the mortgagee sales worm will turn, as interest rates stay higher for longer and as lenders, especially from the Non-Bank sector get tough.

But now we are seeing this discussed in the press, with Realestate.com.au reporting Millions of dollars worth of Aussie homes have been seized for mortgagee sales from McMansions to townhouses and inner city apartments as data shows 100 suburbs in trouble.

However, I think more accountability should be taken by the RBA for its poor monetary policy decisions, the government for pumping migration and lenders for lending way too much and the industry for frankly telling porkies.
But at the end of the day, it is individual households who are caught in the vice, and are having to make hard decisions about their financial futures.

We will be releasing the next edition of our stress analysis in a few days, look out for that, but already I can see that the tax cuts and Government handouts are only providing limited short-term relief for some, so I effect more defaults in the months ahead.

I hate to be proved right on this, but I think I will be!

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

Digital Finance Analytics (DFA) Blog

The Mortgage Stress Pigeons Coming Home To Roost!

00:00 / 00:08:52

DFA Live Q&A HD Replay: Asset Inflation, Rate Cuts & Crypto: With Adam Stokes

This is an edited version of a live discussion with Crypto evangelist Adam Stokes as we examine the recent changes in the market, as gold rockets to new highs, even as rate cuts and QT is under way. Where is the real value of money, and how does Crypto play into this?

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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: Asset Inflation, Rate Cuts & Crypto: With Adam Stokes

00:00 / 01:30:40

Its Edwin’s Monday Property Rant!

In this weeks show with our Property Insider Edwin Almeida, we look at the latest data and reports on the property market. How far is the lag and what can we tell about what is happening on the ground?

The vibes are showing higher listings, but not necessarily good quality ones and the rest, while politics seems to be warping things even more.

The pressure on households is real, but some polys are still building their investment property portfolios. Conflict? What conflict?

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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.

Digital Finance Analytics (DFA) Blog

Its Edwin's Monday Property Rant!

00:00 / 01:04:54

Is Property Springing Into Life, Or Catching A Cold?

Whilst data should be immutable, interpretation of said data can be tweaked and turned, to spin a particular story. As we have seen in the press this past week. Take, for example auction clearance results.

The preliminary auction clearance rates for this past weekend in the biggest markets of Sydney and Melbourne came out tracking nationally at 71.4 per cent of homes listed for auction based on CoreLogic data. Sydney’s clearance rate was 74.9 per cent and Melbourne’s 68.7 per cent, more or less in line with the previous week. Among the smaller capitals, Adelaide led the way with a clearance rate at 79.5 per cent, followed by Brisbane at 67.3 per cent and Canberra at 56.5 per cent, according to CoreLogic data. But these are on very low counts, so again not that meaningful.

Domain on the other hand reported a Sydney clearance of 67.8% up from 64.2% last week, and below the 68.7% from a year ago. Melbourne was at 62.4% compared with 59.6% last week, and 61.9% a year back. The national number was 63.5%, a significant divergence from CoreLogic’s higher 71.4%.

There are a few points worth making here. The final numbers tend to settle lower, because agents are always keen to promote successful sales, while those passed in are either never reported, or reported later. Some properties are withdrawn before auction, either because they are sold prior, or because the vendor changes tack. As such auction clearance rates do not tell us much at all.

Of course, the spring selling season is now ramping up, and about 2300 auctions are scheduled in the coming week, compared with around 2,000 this past couple of weeks. And listings are rising as vendors decide to sell or are forced to sell. We will chat about this again on Mondays Rant with Edwin. But we do continue to see a spate of ex-investment properties listing, especially in Melbourne, as I reported recently, and the trend is widening.

The bottom line of course is potential buyers should be careful what they purchase, especially as price growth ahead is not assured, especially if the weaker demand for iron ore puts the economy into recession. And prospective sellers would do well to select their agents carefully, as some are still pushing the auction route, one which does not necessarily guarantee a better net sale price, but which does guarantee more income for agents via their additional marketing and auction fees. Just saying!

http://www.martinnorth.com/

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

Find more at https://digitalfinanceanalytics.com/blog/ where you can subscribe to our research alerts

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

Digital Finance Analytics (DFA) Blog

Is Property Springing Into Life, Or Catching A Cold?

00:00 / 00:10:21

Rate Cuts Incoming: But Be Careful What You Wish For!

This is our weekly market update where we start in the US, cross to Europe and Asia and end in Australia, while covering commodities and crypto on the way.

Weird though it seems, a short speech given by an elderly gentleman in a valley and wilderness recreation area in western Wyoming had the markets on edge all week, following the fall then rise of markets this past few weeks. The mini-stroke that roiled global markets a few weeks ago is a fading memory, with the market resuming its steady march higher; the S&P 500 is now up 19 per cent for the year, and almost 37 per cent from last November, when the current bull market rally really got going.

Of course we are talking about FED Chair Jerome Powell, and his speech at Jackson Hole as part of the Central Bankers’ summer love-in on Friday. Just four minutes and 50 seconds into his speech, he gave the market what it wanted to hear.

“The time has come for policy to adjust,” the Federal Reserve chairman said in his long-awaited speech at the Fed’s annual Jackson Hole symposium.

“The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

As always, the markets heard what they wanted to hear, and acted accordingly, Wall Street leapt higher and bond yields fell.

At the close in NYSE, the Dow Jones Industrial Average added 1.14% to hit a new 1-month high, while the S&P 500 index climbed 1.15%, and the NASDAQ Composite index climbed 1.45%.

But while the rate cut signal is now clear, should markets rally? You may want to reflect on this. In the first 200 days following the first rate cut, equities typically decline by 23 per cent on average. The start of the rate cycle signals the beginning of a deterioration in growth and profits.

http://www.martinnorth.com/

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

Digital Finance Analytics (DFA) Blog

Rate Cuts Incoming: But Be Careful What You Wish For!

00:00 / 00:22:10

The Real Truth About The Wealth Of Nations: With Bruce Francis Schaafsma

I caught up with author Bruce Francis Schaafsma who has just published a thought provoking book which questions some fundamental assumptions about economics, with profound and far-reaching consequences. While we see the rich getting richer whilst others struggle, what if there are enough resources in the world, and the real issue we face is a distributional one, and not scarcity related – despite what modern economists would have you believe?

Bruce’s website is at https://abundanomics.info/

https://www.austinmacauley.com/genre/politics-philosophy-non-fiction

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Digital Finance Analytics (DFA) Blog

The Real Truth About The Wealth Of Nations: With Bruce Francis Schaafsma

00:00 / 00:21:19