Market Wrap March 2019

Markets

• Market Performance – The ASX200 was up 0.7% for March.
• Sector Performance – The top performing sector for March was the REITs Sector returning 6.2% and the worst performing sector was the Energy Sector coming in at -4.1%.
• Banks – The majority of the big 4 banks fell during the month of March, CBA -4.5%, Westpac -4.0% and ANZ -7.0% all down. The exception was NAB which was up 0.6%.
• Global – The S&P 500 in the US was up 1.5% for March. The Shanghai Composite Index was up 4.6%.

Property

• House Prices – In March housing prices fell 0.7% seeing the national average decline 6.9% over the past year, the worst since the GFC. Sydney prices are down 13.9% from their July 2017 peak and Melbourne prices are down 10.3% from their November 2017 peak. Thousands of home owners (as many as 450,000 properties) in Sydney and Melbourne are left with houses worth less than what they initially paid. Sellers pushed to drop asking prices on ‘fear of not getting out’ (FONGO) before prices fall further.
• Auctions – The last week of March saw auctions fall to 1,667 properties. This is significantly lower than the 3,990 properties that went to auction over the same week last year pre-Easter. Successful auctions are expected to remain below 50% through most of 2019 adding further pressure on the market. Auction clearance rates above 80% were common a few years ago.
• Loans – In January home loans fell 2.1% to the lowest levels seen in 5 years, a 20.6% fall from the prior year with expectations to fall much further. Whilst total lending to investors has fallen nearly 50% in less than 3 years.
• Household Debt: Household debt to disposable income hit record highs up almost 200%. Household wealth has also taken the largest fall since 2011, down 1.3% since last year.
• Rental Yields – Sydney recorded the lowest rental yields at 3.5% over the past 3 months. When expenses are deducted from this, the real yield is much lower.
• Residential Approvals – Residential Building Approvals are down 28.6% on an annualised basis.

Economy

• Interest Rates – UBS continue to expect interest rate cuts this calendar year in July and August.
• Bond Yield – Australia’s 10-year bond yield dropped to historic lows to 1.76% following the inversion of the US yield curve signalling recession fears. When the US has experienced an inverted yield curve in the past, this has resulted in a recession within approximately 18 months. An inverted yield curve occurs when interest rates on 10-year government bonds are paying less than on 3-month contracts – indicating a decline in economic activity going forward.
• GDP – GDP dropped to the weakest level since the GFC to 2.3%. Interestingly GDP per capita has been negative following a boom in population growth of 1.6% from this time last year.
• Exports – Coal supplies an enormous 77% of the national electricity grid in Australia, which is about twice US levels. Fossil fuels represent our largest national export, delivering more than $60 billion in income during the 2017-18 year.
• Car Sales – New car sales have been declining for the past 11 months. Car sales fell approximately 1% in February and are on an accumulated fall of approximately 9-10% from February 2017.
• Employment – The unemployment rate fell to 4.9%, driven by part-time employment growth of 11,900 jobs and a fall in the number of people seeking work. However, full-time jobs fell 7,300 jobs in February. This was below market expectations by 10,400 new job positions. ANZ Job ads continue to fall.
• Exchange Rates – The Australian Dollar was weaker against the US Dollar at $0.710, falling 0.1c throughout March.
• US – US jobs growth weakest since 2017 falling short of estimates, increasing by only 20,000 in February. The 2018 calendar year jobs growth average was 223,000 per month so 20,000 new jobs in the US is a big drop! Unemployment still fell to 3.8%.

Sources: UBS, Westpac, ABS, US BLS, CoreLogic, BIS Oxford Economics, AFR, The Australian