Today I want to revisit one of Australia’s most stupid policies which are in turn driving manufacturing offshore, and hitting households and businesses with higher costs, and forcing the Government to spend tax-payer funds on energy subsidies for households to try and keep inflation down.
We are in the unspeakable position where Australia, who owns huge, though dwindling natural gas supplies, has allowed large multinational corporations to extract massive amounts of gas from the reserve, and then transform this resource into LNG – Liquefied natural gas is natural gas that has been cooled down to liquid form for ease and safety of non-pressurized storage or transport. The Australia Institute showed that more gas is used for conversion than for household use in Australia and 82% is used for exports.
So we are exposed to the international gas price which would be equivalent to Saudi Arabia paying international oil prices at home, which of course they do not. Fuel is dirt cheap there.
This is a massive mess, created by many years of bad policy, across both shades of Government. It shows the power of big Gas to call the shots, of politicians not thinking strategically, and spooking us with vague “sovereign risk” issues if we were to seek to renegotiate those existing gas contracts, and impose a real domestic reservation and export levies, which they could and should.
So riddle me this: Why are countries with no gas busy building up stockpiles to cope with renewable intermittency when a country like Australia that is swimming in gas is exporting it all to China while building up zero inventory to cope with its own seasonal fluctuations? Utter madness, with Australian households and businesses paying the price.
We are crossing the ditch to New Zealand today to look at the latest home price data from the REINZ, and the latest inflation data from the RBNZ.
The New Zealand property market experienced a relatively quiet month in December 2024. Actually, sales increased by 1.8% nationwide compared to December 2023, rising from 5,420 to 5,518 but the median price for New Zealand decreased slightly by 0.6% to $775,000 year-on-year. Month-on-month, the national median price fell 1.8% from $789,000. Auckland prices were down 4.3% over the past year, and Wellington was down 5.4%.
National inventory levels have risen, increasing by 18.5% year-on-year to 29,478. However, inventory levels have decreased by 13.3% compared to the previous month, down from 33,984. Nationally, the days to sell rose 6 days year on year to 42 days.
The latest data from the RBNZ showed inflation slowed, though locally grown inflation was still sticky. Ahead, we can expect further rate cuts this year, as inflation tracks in line the RBNZ expectation, though external factors like exchange rates are in play, increasing uncertainty.
Whether the RBNZ will need to push the OCR below circa 3.25% neutral levels or have the OCR move higher remains to be seen, with monetary policy settings for 2025 and beyond highly conditional on the (still-uncertain) economic outlook.
This uncertainty flows back directly into the property market, and despite the lower rates ahead, the broader uncertainties and financial pressures many households are feeling will continue to hold the property market in a zone of uncertainty, especially given weaker demand as migration rates continue to ease. There is no easy upside breakout in property prices here.
The ABS today released its building activity data for the September quarter 2024. This data provides estimates of the value of building work and number of dwellings commenced, completed and under construction across Australia and its states and territories.
They report that Australia commenced construction on just 43,250 new homes in the first quarter of the 2024/25 financial year seasonally adjusted and completed 44,884 new dwellings in the September quarter.
Remember that the Government has set a target of 1.2 million new homes over five years (July 2024 to June 2029). Based on the current trajectory, which of course has the potential to ramp up in later years at least in theory it looks like around only 173,000 homes will be commenced during the first year of the National Housing Accord period, which is 67,000 short of that necessary to meet the annual targets. And of those new homes completed, this was also well short of well short of the desired 60,000 per quarter.
Yet Albo was out spruiking 25,000 more homes across NSW. Saying And they’ll be connected to the transport, services and local parks that make communities great places to live. Because whether you live in the cities or the regions, everyone deserves the security of a roof over their head. Though Mat Barrie perhaps put his finger on it quite well, tweeting “and probably also connected to electorates who do not vote for the ALP 2PP.
That selfie, one of many from Albo in what I call the announcables category, created a social media storm reaction, including this “Albo posting every single day about how he “fixes” the housing crisis is beyond pathetic. No moral, no spine. Go away…
Actually, the current miss on housing targets is a symptom of a more general malaise. Trouble is neither side of politics wants to fess up ahead of the upcoming election!
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Today’s post is brought to you by Ribbon Property Consultants.
This is an edit of a live discussion as we deep dive into my latest mortgage, rental and investor stress modelling across Australian post codes. Property for many is turning into a nightmare!
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DFA Live Q&A Replay: The Great Australian Nightmare…. A Post Code Deep Dive
This is our weekly market update, where we start in the US, cross to Europe and Asia and end in Australia, covering commodities and crypto along the way. This week we saw more volatility, but with the MSCI global index up 2.56%, and up for the year to date, and 18% for the past year. The US dollar continues to hold at high levels, while bond yields eased back from recent highs. The US Volatility index slide to 15.97 ahead of the arrival of Trump 2.0 on Monday.
No doubt, investors will closely monitor stock markets on Tuesday, the day after Donald Trump is inaugurated for his second term in the White House, to see if U.S. equities can continue their recent trend of posting gains after a president is sworn in. While historically, the benchmark S&P 500 stock index has not performed well on average on inauguration day, or the day after if the inauguration falls on a market holiday, the last three inaugurations have all resulted in market gains. Total S&P 500 returns in the first year in office for Barack Obama, Trump and Joe Biden topped 20 per cent. Actually, Trump broke the cycle in 2017, making him the first Republican to take over from a Democrat and not have a recession in the first year of his presidency since Harding in 1921. Let’s see if he can make it two consecutive times.
It’s critical to distinguish market from overall economic impacts; the two shouldn’t be conflated. The U.S. economy is a net importer, as it imports more than it exports (hence the trade deficit). But the S&P 500 is a net exporter. Leading exports from these companies include agricultural products, machinery, finished vehicles, technology, electronic equipment, minerals, fuels and oils around the globe, primarily to Canada, Mexico, China, Japan and the United Kingdom.
European shares ended on a positive note on Friday, benefiting from a broad-based rally which was fuelled by declining government bond yields and encouraging economic data from China, with the STOXX 600 logging its fourth straight weekly rise. The benchmark index, which rose by 0.7%, recorded a more than 2% gain over the week, achieving its fourth consecutive week of advances, its longest winning streak since Aug. 26 last year. Most STOXX sub-sectors were trading higher, with rate-sensitive sectors, like construction and industrials boosting the index, rising 1.6% and 1.5% respectively.
Most Asian stocks rose on Friday, buoyed by gains in Chinese stocks following robust economic data, while Japanese equities declined sharply on expectations of an interest rate hike next week. Gains were limited as regional markets were cautious ahead of the U.S. President-elect Donald Trump’s inauguration due next week.
China’s economy grew more than expected in the fourth quarter of 2024, gross domestic product data showed on Friday, as Beijing doled out a slew of stimulus measures aimed at supporting growth.
Australian shares edged lower on Friday as investors took profits in the banks ahead of US president-elect Donald Trump’s inauguration early next week. Hundreds of billions of dollars in Australian retirement savings are invested in American equities, benefiting from bullish market sentiment as traders hoped Mr Trump’s administration will boost company earnings. The lack of breadth has caused some fund managers to avoid US tech stocks altogether.
http://www.martinnorth.com/
Details of our one to one service are here: https://digitalfinanceanalytics.com/blog/dfa-one-to-one/
Go to the Walk The World Universe at https://walktheworld.com.au/
Given the current focus on the rise in the use of cash, it is worth remembering that each year Australian households are collectively charged somewhere between 1 billion dollars and 4 billion dollars in payment surcharges, which is a fee paid by customers, in addition to the price of a good or service, allowing merchants to pass on the cost of the customer’s chosen payment method. These days its mostly debit transactions which might also be triggered by electronic payments from phones and other devices, as well as debit and credit cards.
The RBA accelerated a review into merchant payment costs and surcharging, and has now released the 90 plus submissions received from interested parties and it is clearly creating a storm, with some calling for the banning of said surcharges and others arguing that banning surcharges would result in higher prices to consumers.
When surcharging was introduced 20 years ago, the RBA put Australia out of step with most of the rest of the world, where the practice is illegal. At the time the central bank’s intention was to use them as a price signal to customers that the more expensive payment methods at the time – credit cards – were a burden for the seller. I always believed this is a policy error.
They have been out maneuvered by banks and lately FinTechs who have introduced fixed pricing plans in an attempt to reduce payment fee complexity for business customers. These plans let a merchant pay the same cost irrespective of what card the customer uses. But this has resulted in more surcharging of debit cards, which is the fastest growing segment of the payments market, and which in theory should be the cheapest.
So, some firms are benefiting from the current system, especially larger firms. Second, there is little transparency and as transaction volumes rise, the costs on households rise too. Third, the original assumptions about unbundling and price signaling has proven incorrect, as technology has evolved faster than regulators ability to keep up. To me the benefits of removing surcharging altogether outweigh other options, but of course the question will be, will households at the end of the day, get the benefit. They certainly should, but big business are often in the way…
http://www.martinnorth.com/
Details of our one to one service are here: https://digitalfinanceanalytics.com/blog/dfa-one-to-one/
Go to the Walk The World Universe at https://walktheworld.com.au/
Given the current focus on the rise in the use of cash, it is worth remembering that each year Australian households are collectively charged somewhere between 1 billion dollars and 4 billion dollars in payment surcharges, which is a fee paid by customers, in addition to the price of a good or service, allowing merchants to pass on the cost of the customer’s chosen payment method. These days its mostly debit transactions which might also be triggered by electronic payments from phones and other devices, as well as debit and credit cards.
The RBA accelerated a review into merchant payment costs and surcharging, and has now released the 90 plus submissions received from interested parties and it is clearly creating a storm, with some calling for the banning of said surcharges and others arguing that banning surcharges would result in higher prices to consumers.
When surcharging was introduced 20 years ago, the RBA put Australia out of step with most of the rest of the world, where the practice is illegal. At the time the central bank’s intention was to use them as a price signal to customers that the more expensive payment methods at the time – credit cards – were a burden for the seller. I always believed this is a policy error.
They have been out maneuvered by banks and lately FinTechs who have introduced fixed pricing plans in an attempt to reduce payment fee complexity for business customers. These plans let a merchant pay the same cost irrespective of what card the customer uses. But this has resulted in more surcharging of debit cards, which is the fastest growing segment of the payments market, and which in theory should be the cheapest.
So, some firms are benefiting from the current system, especially larger firms. Second, there is little transparency and as transaction volumes rise, the costs on households rise too. Third, the original assumptions about unbundling and price signaling has proven incorrect, as technology has evolved faster than regulators ability to keep up. To me the benefits of removing surcharging altogether outweigh other options, but of course the question will be, will households at the end of the day, get the benefit. They certainly should, but big business are often in the way…
Well, we got the December 2024 data on unemployment today, and overall Australia’s unemployment rate remained low in December as the economy extended a streak of hiring gains, underlining the labor market’s unusual resilience to elevated interest rates.
Employment jumped by 56,300 — driven entirely by part-time roles — versus a forecast 15,000 gain. The jobless rate rose to 4% rising by 0.1 percentage points in seasonally adjusted terms.
Now, we should say there were some variation between the outgoing and incoming rotation groups this month, sufficient I think to explain the slight shifts we are seeing. But the headline news is the jobs markets remains pretty strong.
Economists say there is no urgency for the Reserve Bank of Australia to deliver a pre-election cash rate cut in February after a bumper jobs report showed the labour market continued to defy expectations of a looming slowdown.
That would leave the central bank’s April meeting as the only point before an election due by May 17 for the RBA to deliver relief to struggling households, narrowing the chance of the Albanese government getting an electoral boost from lower rates.
Jim Chalmers wrote “We’ve shown you can make substantial & sustained progress on inflation without sacrificing jobs. 1.1 million jobs have been created under the Albanese Labor Govt including an extra 56,000 last month.
No talk there about the massive migration flows which are pumping the economy equivalent, on one calculation to one person arriving every 46 seconds. Or the fact that household disposable income in real terms is crashing, and well below the G7 Countries, the US, or even OECD countries. “This is the soft landing that we are seeking, that we are delivering,” Dr Chalmers told reporters.
The real story is high migration, plus because of the financial pressure on many households, more are picking up two or more jobs, or side hustles with nearly a million Australians in this category.
When you peel back the onion, the bulk of recent employment gains have been in the so-called “non-market sector”, which includes the government-funded industries of education, healthcare and the public service. About half the increase in hours worked across the economy in the 12 months to December were in the non-market sector.
The tight labour market, along with weak productivity growth and elevated government spending, makes it tough for the Reserve Bank to achieve low and stable inflation!
http://www.martinnorth.com/
Details of our one to one service are here: https://digitalfinanceanalytics.com/blog/dfa-one-to-one/
Go to the Walk The World Universe at https://walktheworld.com.au/
Last week the ACCC released their Gas Inquiry 2017-2030 interim report, and it makes horrifying reading. It is such a monumental stuff-up over a couple of generations, it’s hard to believe the corporations did not deliberately set up to maximise profit at the expense of ordinary Australians, while successive Governments were complicit, either because they dared not confront big gas, were scared of the consequences via sovereign risks of changing the rules or simply were ignorantly led by the nose.
All this has stoked inflation via higher electricity prices to the point where now the Government is using more taxpayer money to hand support payments to households. You can’t make this stuff up! Mind you the ACCC report which is very detailed manages to skate round the core issue.
Of late the government has made minor changes to overhaul regulations, which in theory allows it to intervene and limit exports of LNG. In practice though little has changed, and unlike in WA where is the a reservation for domestic supply, the east coast is stuffed.
As I discussed with Robbie Barwick yesterday this is one of the greatest scandals Governments have created for ordinary Australians, but yet again, no signs of bold action, in the form of gas reservation, just a muddle in which people are being taken to the cleaners, even as the Government offers more “help” on electricity prices, at the expense of taxpayers.
http://www.martinnorth.com/
Details of our one to one service are here: https://digitalfinanceanalytics.com/blog/dfa-one-to-one/
Go to the Walk The World Universe at https://walktheworld.com.au/
This is an edit of a live discussion with Robbie Barwick, Research Director for the Australian Citizens Party as we discuss the real issues to be chased down this year, even as we face into the upcoming election. Given both major parties seem to be dancing to the same old tune, what should be agenda be, and how can we move the dial to the betterment of ordinary Australians?
http://www.martinnorth.com/
Details of our one to one service are here: https://digitalfinanceanalytics.com/blog/dfa-one-to-one/
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
Digital Finance Analytics (DFA) Blog
DFA Live Q&A HD Replay: The Real 2025 Agenda: With Robbie Barwick
