Join me for a live discussion about the current state of the property market, and household financial stress in the light of the RBA’s 25 basis point hike. We will have our post code engine on line.
A September economic update, which highlights why things are going to get interesting in the weeks ahead. Central banks have a headache, as inflation still burns stubbornly hot, but financial stability issues are also emerging, so they have some tricky decisions to make.
And yet the FED has said a property price correction, and stock market correction would be “helpful” in the fight, to say nothing of a rise in unemployment.
Whether we hit a recession or not, in the short-term rates are going higher. This will have significant knock-on effects. Home prices will slide further, and markets will drop again – as they often do in October.
Go to the Walk The World Universe at https://walktheworld.com.au/
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.
After the rout of September, sorry to break this to you, but stock markets historically have experienced well-above-average volatility in October. It’s often a spooky month for stocks and several of the greatest crashes in stock market history have occurred during the month, including ‘Black Tuesday’ and ‘Black Thursday’ in 1929, as well as ‘Black Monday’ in 1987 and the worst of the 2008 financial crisis meltdown. Some have dubbed this the ‘October Effect’.
Guggenheim Securities Chief Investment Officer Scott Minerd said that he expects stocks to fall another 20% by mid-October, citing a connection between price-to-earnings ratios and inflation. “We should see stocks fall another 20% by mid-October…if historical seasonals mean anything,” Minerd said in a tweet.
The Fed has already raised its benchmark interest rate by 300 basis points this year as it fights to bring inflation back under control. And more hikes are expected. We will get more data of course, during the month, but one to watch is the feedback loop between U.S. stocks and bonds.
With the S&P 500 is down more than 20% on the year and showing no signs of hitting a floor, remember the valuation for the index remains elevated, and earnings estimates have only started to turn lower and may fall further as earnings season nears. Additionally, high yield spreads are widening, and volatility measures show that investors’ mood is complacent.
Go to the Walk The World Universe at https://walktheworld.com.au/
After the rout of September, sorry to break this to you, but stock markets historically have experienced well-above-average volatility in October. It’s often a spooky month for stocks and several of the greatest crashes in stock market history have occurred during the month, including ‘Black Tuesday’ and ‘Black Thursday’ in 1929, as well as ‘Black Monday’ in 1987 and the worst of the 2008 financial crisis meltdown. Some have dubbed this the ‘October Effect’.
Guggenheim Securities Chief Investment Officer Scott Minerd said that he expects stocks to fall another 20% by mid-October, citing a connection between price-to-earnings ratios and inflation. “We should see stocks fall another 20% by mid-October…if historical seasonals mean anything,” Minerd said in a tweet.
The Fed has already raised its benchmark interest rate by 300 basis points this year as it fights to bring inflation back under control. And more hikes are expected. We will get more data of course, during the month, but one to watch is the feedback loop between U.S. stocks and bonds.
With the S&P 500 is down more than 20% on the year and showing no signs of hitting a floor, remember the valuation for the index remains elevated, and earnings estimates have only started to turn lower and may fall further as earnings season nears. Additionally, high yield spreads are widening, and volatility measures show that investors’ mood is complacent.
Go to the Walk The World Universe at https://walktheworld.com.au/
My latest Friday afternoon yarn with Journalist Tarric Brooker (@AvidCommentator on Twitter). We look at the latest ructions in the markets and ask what is going to happen next – what is below the waterline, with the help if Tarrric’s slides.
Copies of the slides can be found at: https://avidcom.substack.com/p/charts-that-matter-30th-september
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
But Its Just The Tip Of The Iceberg: With Tarric Brooker [Podcast]
Last Friday the new British Chancellor Quasi Kwarteng unveiled £45 billion of annual unfunded tax cuts that sparked fears the national debt will spiral out of control. The measures included tax cuts, unfettered bankers’ bonuses and other incentives to drive growth.
Deregulatory packages for the financial-services sector, planning, agriculture, telecoms and childcare are only due after the party conference recess and before the Office for Budget Responsibility publishes its independent assessment of the public finances on Nov. 23. The government has said it will wait until the OBR forecast to publish its fiscal framework, which will be a combination of fiscal and growth measures. So all we got was a high-level pen picture, with no detail, and no forecasts. Which is why they did not call it a budget.
But not only was this a major shift from previous Government policy, but it triggered concerns it may be inflationary. Markets reacted badly, as we reported in our weekly wrap, and continued to drive bond yields higher (remember the inverse relationship between bond yields and bond prices – see my earlier show on bonds if you want to understand how these IOU’s work and are priced. https://youtu.be/aOZZPtxlMSQ
Long term bond yields rose significantly, as can be seen by the plot of UK 30-year bonds. And significantly, these instruments are used to price mortgages and cover exposures for pension funds, so they drive the momentum in the financial markets. So, no surprise on Tuesday, markets were roiled and continued their bear market slides, not just in the UK but around the world. The fallout was significant with people thinking the Bank of England would have to lift interest rates – perhaps up to 6% – and meantime many lenders stopped writing mortgages, while pension funds and hedge funds were forced to sell bonds as the prices fell, causing a self-reinforcing downward spiral.
Also, on Tuesday BOE Chief Economist Huw Pill said the bank’s program of government bond sales should go ahead as planned next week if the market repricing stays orderly.
Then On Wednesday we had a series of events which shocked the markets. First the IMF openly criticised the UK government over its plan for tax cuts, warning that the measures are likely to fuel the cost-of-living crisis. In an unusually outspoken statement, the IMF said the proposal was likely to increase inequality and add to pressures pushing up prices.
The IMF of course is normally dealing with developing countries, and applying a Neo-liberal philosophy seeks to cut spending, reduce debt and bring struggling economies back to health. Often financial help is predicated on them taking specific, and often unpopular measures. So, when the IMF specifically called out the UK for its policies, the writing was on the wall.
Not much later, the Bank of England announced they would be carrying out unlimited temporary purchases of long-dated UK government bonds from 28 September. The purpose of these purchases will be to restore orderly market conditions. They are seeking to stave off the crash, by unlimited purchases of gilts.
Is this a Lehman moment?
Go to the Walk The World Universe at https://walktheworld.com.au/
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 alongside 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.
U.S. stocks and oil prices declined in choppy trading on Monday, while the dollar and Treasury yields pushed higher, as Wall Street digested a raft of mixed macroeconomic news.
Global economic growth is slowing more than was forecast a few months ago in the wake of Russia’s invasion of Ukraine, as energy and inflation crises risk snowballing into recessions in major economies, the OECD says. Global growth this year was still expected at 3.0 per cent, but it is now projected to slow to 2.2 per cent in 2023, revised down from a forecast in June of 2.8 per cent, the Organisation for Economic Co-operation and Development said on Monday.
The OECD group, representing wealthy countries, has cut its forecast of Australian economic growth from 2.5 per cent forecast in June to 2 per cent in 2023. While Australia will avoid a recession next year, the OECD believes the Reserve Bank will hike up interest rates another 1.25 per cent.
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.
So, after this latest rate hike, the Fed has now lifted its benchmark rate by 300 basis points, or 3% in just six months as the central bank accelerates policy to restrictive territory with the aim of slowing growth enough to make a meaningful dent in inflation.
“We can’t fail to do that,” he said, referring to the central bank’s mission against price growth. “That would be the thing that would be most painful for the people that we serve. We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t. What we need to do is get rates up to the point where we’re putting meaningful downward pressure on inflation. That’s what we’re doing. We haven’t given up the idea that we can have a relatively modest increase in unemployment.”
But critically, there were no signs of easing its push into restrictive territory as it battles to cool the embers of inflation.
“We’ve just moved into the very, very lowest level of what might be restrictive [territory],” Powell said in the press conference that followed the monetary policy statement. “In my view, there’s a ways to go.”
As a result, the Fed now sees its benchmark rate rising to 4.4% in 2022, above the 3.4% forecast in June, paving the way for further front-loading of rate hikes in the remaining two Fed meetings for the year and into 2023.
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
Forget The FED Pivot - And Housing Price Falls Won’t Stop Them Either! [Podcast]
This past week was momentous, as Central Banks continued to lift rates in an attempt to crush inflation. A half dozen central banks, including in the United States, Britain, Sweden, Switzerland and Norway, delivered rate hikes this week to fight inflation, but it was the Fed’s signal that it expects high U.S. rates to last through 2023 that caught markets off guard.
“There had been some optimists out there saying that inflation may be coming under control, but the Fed effectively told them to sit down and shut up,” said David Russell, VP of market intelligence at TradeStation Group. “The Fed is trying to rip the band-aid off, trying to kill inflation while the jobs market is still strong.”
So finally, I think markets are waking up to what’s happening – no immediate pivot, higher rates for longer – and even if house prices or markets fall.
Goldman slashed its year-end target for the S&P 500 to 3600 from 4300, which it had made in mid-August. “The expected path of interest rates is now higher than we previously assumed, which tilts the distribution of equity market outcomes below our prior forecast.”
“Based on our client discussions, a majority of equity investors have adopted the view that a hard landing scenario is inevitable, and their focus is on the timing, magnitude, and duration of a potential recession and investment strategies for that outlook.”
Federal Reserve chairman Jerome Powell said the US economy may be entering a “new normal” following disruptions from the COVID-19 pandemic. “We continue to deal with an exceptionally unusual set of disruptions,” Powell told business and community leaders at a Fed Listens event in Washington.
Go to the Walk The World Universe at https://walktheworld.com.au/
This past week was momentous, as Central Banks continued to lift rates in an attempt to crush inflation. A half dozen central banks, including in the United States, Britain, Sweden, Switzerland and Norway, delivered rate hikes this week to fight inflation, but it was the Fed’s signal that it expects high U.S. rates to last through 2023 that caught markets off guard.
“There had been some optimists out there saying that inflation may be coming under control, but the Fed effectively told them to sit down and shut up,” said David Russell, VP of market intelligence at TradeStation Group. “The Fed is trying to rip the band-aid off, trying to kill inflation while the jobs market is still strong.”
So finally, I think markets are waking up to what’s happening – no immediate pivot, higher rates for longer – and even if house prices or markets fall.
Goldman slashed its year-end target for the S&P 500 to 3600 from 4300, which it had made in mid-August. “The expected path of interest rates is now higher than we previously assumed, which tilts the distribution of equity market outcomes below our prior forecast.”
“Based on our client discussions, a majority of equity investors have adopted the view that a hard landing scenario is inevitable, and their focus is on the timing, magnitude, and duration of a potential recession and investment strategies for that outlook.”
Federal Reserve chairman Jerome Powell said the US economy may be entering a “new normal” following disruptions from the COVID-19 pandemic. “We continue to deal with an exceptionally unusual set of disruptions,” Powell told business and community leaders at a Fed Listens event in Washington.
Digital Finance Analytics (DFA) Blog
Bears Are Showing Their Teeth: Be Clear, Markets Have Further To Fall! [Podcast]
