Markets
Local:
The ASX200 index fell slightly by -0.16% over March, following a -2.5% fall in February.
Global:
The S&P 500: Rose by 3.5% over the month to complete a second consecutive positive quarter.
The Dow Jones Industrial Average: Advanced 1.89% in March.
Stoxx Europe 600 Index: Finished lower than the previous month to finish down 2.36%.
Gold:
The spot price for Gold steadied around $1,980 and gained more than 8% in March, as investors wagered in that interest rates have likely reached near their peak in this tightening cycle.
Iron Ore:
Iron Ore price remained steady MoM rising US $1 to finish March at US $127/ Mt. As expectations of weaker demand in the long term constrained a real price rebound.
Oil:
Brent Oil price continued to decline to finish the month at US $80/bbl.
Property
Housing:
After remaining virtually flat in February (-0.1%), CoreLogic’s national Home Value Index (HVI) posted the first month-on-month rise since April 2022, up 0.6% in March.
Dwelling values were higher across the four largest capital cities and most of the broad ‘rest-of-state’ regions, led by a 1.4% gain in Sydney. CoreLogic’s Research Director, Tim Lawless, put the rise down to a combination of low advertised stock levels, extremely tight rental conditions, and additional demand from overseas migration.
“Although interest rates are high and there is an expectation the economy will slow through the year, it’s clear other factors are now placing upwards pressure on home prices,” Mr Lawless said.
“Advertised supply has been below average since September last year, with capital city listing numbers ending March almost -20% below the previous five-year average. Purchasing activity has also fallen but not as much as available supply; capital city sales activity was estimated to be roughly -7% below the previous five-year average through the March quarter.
Economy
Interest Rates:
The RBA has finally halted its cash rate after 10 consecutive increases. This is the first board meeting since April 2022 without a rate rise. The Board recognises that monetary policy operates with a lag and that the full effect of this substantial increase in interest rates is yet to be felt.
Retail Sales:
Retail sales in Australia grew by 0.2% MoM to AUD 35.14 billion in February 2023, beating market estimates of a 0.1% rise but slowing from a marginally revised 1.8% gain in the previous month.
Bitcoin:
Bitcoin had a steady rise over March to finish the month at USD $27,583. A 17% increase from the previous month.
Bond Yields:
Australian government 10-year bond fell to 3.29% over March. The US 10-year bond also fell to 3.49%.
Exchange Rate:
Over March the Aussie dollar remained stable against both the American dollar at $0.671, and the Euro at $0.615.
Inflation:
Australia: The February “Consumer Price Index” (CPI) slowed to 6.8% from 7.4% in January.
USA: The latest data from February shows that the US inflation rate is 6.04%.
UK: Recent data shows the UK inflation rate is at 10.4%
EU: Euro area annual inflation was 8.5% in February 2023, down from 8.6 % in January 2023.
Consumer Confidence:
The Westpac Melbourne Institute Consumer Sentiment Index was unchanged at 78.5 in March, holding near historical lows. This marks the second consecutive month of extremely weak consumer sentiment. Index reads below 80 are rare, back-to-back reads even rarer. Indeed, both the COVID shock and the Global Financial Crisis saw only one month of sentiment at these levels. Runs of sub-eighty reads have only been seen during the late 1980s/early 1990s recession and in the ‘banana republic’ period of concern in 1986, when the Australian dollar was in free-fall after the Federal government lost its triple-A rating.
Employment:
Australia: Australia’s seasonally adjusted unemployment rate declined to 3.5% in February 2023 from January’s eight-month high of 3.7% and below market estimates of 3.6%, as the number of unemployed decreased by 16,500 to 507,500. People looking for full-time jobs dropped by 4,800 to 341,500, and those seeking part-time jobs – by 11,700 to 166.000.
USA: Total nonfarm payroll employment rose by 311,000 in February, and the unemployment rate edged up to 3.6%. Notable job gains occurred in leisure and hospitality, retail trade, government, and health care. Employment declined in information and in transportation and warehousing.
Agriculture:
The gross value of agricultural production is forecast to reach a record of $90 billion in 2022-2023. The value of exports is also expected to reach a record of $75 billion.
Purchasing Managers Index:
The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) fell 1.4 points to 49.1 points in March 2023. Results below 50 points indicate an economic contraction. The lower the number indicates a faster rate of contraction.
US Services PMI:
The S&P Global US Services PMI rose to 53.8 in March 2023 from 50.6 in January, easily beating market expectations of 50.5, preliminary estimates showed. It was the fastest rise in output since April 2022.
US Global Manufacturing PMI:
The S&P Global US Manufacturing PMI increased to 49.1 in March of 2023 from 47.3 in February, beating forecasts of 47, preliminary estimates showed. The reading pointed to the smallest contraction in the current five-month sequence of falling factory activity, amid a renewed rise in production and a softer fall in new orders.
Sources: ABS, AFR, AWE, BLS, CoreLogic, Macquarie MWM Research, RBA, TradingEconomics, UBS.
Comments
Australia’s Migration Recovery
There are plenty of indicators to suggest that Australia`s economy has slowed sufficiently to keep inflation down, this can somewhat be backed up by the RBA holding the cash rate to 3.60% at the April meeting, but there are also some tailwinds for the Australian economy in 2023, with strong population growth key amongst them.
Recent ABS population data showed that Australia had recorded its highest level of net migration since pre GFC. In the September 2022 quarter, the national population grew 0.5%, driven significantly by a spike in net migration of 106,000 in the quarter. Over the past year, net overseas migration is up to 304,000 (a near record for annual growth).
The recovery of migration following the pandemic has helped to relieve some pressure from the labour market. However, the unemployment rate still sits at 3.5%, suggesting many organisations are still struggling to find enough workers. As the most recent population data available from the ABS records the September 2022 quarter, it is possible that net overseas migration has already moved to a record high. One of the key drivers for this sharp population rebound is the return of international students.
Border closures, particularly in China, had delayed the return of many international students to on-campus‑learning in Australia. TEQSA (Tertiary Education Quality and Standards Agency), the regulator for tertiary education in Australia, made an announcement in October 2022 that international students will need to return to in person learning by the second semester of 2023. This highlights the potential for strong net migration numbers to continue through the remainder of 2023.
There are many key factors impacting the return of students from different countries.
- Students planning to return to Australia from China may have had their plans brought forward, after an unexpected statement from the Chinese government instructed students enrolled in overseas institutions to return in person classes for the coming semester. This announcement was followed up with a series of exceptions, leaving some uncertainty as to the true impact of this policy. Regardless, in December 2022 an estimated 39% of Chinese international students were based overseas, a majority of whom are expected to return to Australia by the start of semester 2, 2023.
- Indian students have been much faster to return to Australia following the reopening of the border. In 2023 there will likely be far fewer Indian students returning as many came back to Australia already in 2022. Visa applications from Indian students grew by 24,145 from 2021 to 2022.
- The temporary relaxation of working restrictions for student visa holders in 2022, and some recent permanent changes have attracted many students from lower income nations. Visa applications from Nepalese students grew 149% from 2021 to 2022 and are 60% above their levels in 2019. These students are attracted to Australia by the combination of education and access to the high wages of the Australian labour market.
The continued recovery of international student numbers provides a tailwind for Australia’s overall population and income growth in 2023, providing some offset to the demand crunch coming via the Reserve Bank. On top of this, healthy numbers of international students have started to help ease labour shortages, particularly in industries like hospitality and retail.
Sources: ABS, AFR, Deloitte
Reverse mortgage demand surges as cost of living hits retirees
Cash-poor retirees are tapping into equity in their homes through reverse mortgages to cover rising living expenses as the industry tries to improve its tarnished reputation following the withdrawal of major banks.
As the population ages, policymakers are keen to encourage retirees to draw down on their wealth to fund their incomes, and Treasury’s Retirement Income Review of 2020 drew attention to reverse mortgages as an option.
Reverse mortgages are loans that allow people aged sixty or older to borrow against the equity in their home and not repay the lender until they move out, sell the home, or die.
Major banks stopped selling this type of loan last decade amid concerns about the risk to their reputations. A 2018 review by a corporate watchdog said reverse mortgages were playing a role in helping older Australians, but lenders had failed to consider the risks of the products, such as how retirees taking out the loans would afford future costs, such as aged care.
As the cost of living rises, and a government-provided reverse mortgage scheme grows in popularity, specialist lenders are reporting increasing demand for the products.
Dr Joshua Funder, chief executive of reverse mortgage provider Household Capital, said there was a growing awareness of the product, which people saw as a way to maintain or increase their income in the difficult economic climate.
Rising interest rates and falling house prices mean reverse mortgages – which have higher interest rates than normal home loans – will erode a borrower’s equity faster than otherwise.
But Funder said customers were being cautious in how much they borrowed, saying some might draw down an extra $1000 a month to help cover rising costs.
“We’re seeing people be very careful about meeting their non-discretionary needs and cost-of-living increases and leaving themselves home equity that will be available in the future to meet their needs regardless of interest rates and home prices,” Funder said.
He cited “increased debt consolidation and cost-of-living requests” as a key driver, alongside demand from retirees using the money for “modest lifestyle spending” such as on holidays or new cars, following an end to COVID-19 lockdowns.
It also said the federal government’s Home Equity Access Scheme, which provides limited reverse mortgages, had raised awareness. As older Australians can get a voluntary non-taxable loan from the Australian government. Which by using the equity in Australian real estate as security for the loan, are able to access extra funds.
Jarden analyst Grant Lowe said Australia’s reverse mortgage market had most likely been growing because of a “demographic tailwind” and the federal government’s involvement in the sector.
If the correct loan structure is obtained, a reverse mortgage provides a way of remaining in the family home instead of selling it to raise funds to live off. For many people, this is an enormous benefit and can relieve some of the pressures that the rising cost of living has provided.