Markets
Local:
The ASX 200 had its best month of the year in July, finishing up 4% to set a new record high at 8,092.
Global:
The S&P 500 advanced 1.2%.
The Dow Jones Industrial Average rose 4.5% higher in July.
The NASDAQ slipped 0.7%.
The FTSE 100 had a solid gain over July to finish the month 2.52% higher.
Gold:
The spot price for Gold had a strong rise over July to finish the month at US $2,445 /oz.
Iron Ore:
Iron Ore prices fell again in July to finish the month at US $105.94 /Mt.
Oil:
Brent Oil prices fell in July, ending the month at US $80.84 /bbl.
Property
Housing:
CoreLogic’s national Home Value Index (HVI) rose 0.5% in July, the 18th consecutive monthly increase nationally – a figure on par with the 0.5% increase recorded in June. Following a -7.5% decline recorded between May 22 and Jan 23, the national HVI has gained 13.5% and values have consistently pushed to new record highs since November last year.
However, while the headline growth rate remains positive, it is clear momentum is leaving the cycle and conditions are becoming more diverse.
Three capitals recorded a decline in values over the past three months. Melbourne led the decline with a -0.9% fall, alongside a -0.8% and -0.3% reduction in Hobart and Darwin values respectively. The rolling quarterly pace of growth has slowed markedly in Sydney to 1.1%, a fraction of the 5.0% quarterly gain recorded at the same time last year. These dynamics are weighing on growth in national home values, which are up 1.7% in the past three months compared to the 3.2% increase seen this time last year.
Economy
Interest Rates:
The Reserve Bank of Australia left the cash rate on hold at a 12-year high of 4.35% as widely predicted by the market and economists. The central bank has lifted interest rates 13 times since 2022 to tame inflation that has remained stubbornly above the RBA’s 2% – 3% target.
The Bank of England joined the European Central Bank and the Bank of Canada in easing policy and the US Federal Reserve is expected to follow in September.
Retail Sales:
Retail sales in Australia increased by 0.5% mom in June 2024 and rose 2.9% compared with the same period 12 months prior.
Bond Yields:
Australia’s 10-year government bond yield ended the month at 4.12% down from the previous month at 4.31%.
The yield on the US 10-year government bond continued its downward trend to finish the month at 4.09%.
Bitcoin:
Bitcoin fell below $65,000 after the US Federal Reserve announced it would keep interest rates unchanged. However, with markets now anticipating rate cuts in the upcoming Federal Reserve meeting in September, the outlook for a Bitcoin rally by the end of the year has strengthened.
Exchange Rate:
The Aussie dollar fell against the American dollar to finish July at $0.649 and fell against the Euro to finish at $0.599.
Inflation:
Australia: Quarterly consumer price inflation rose by 1.0% in the June quarter 2024, resulting in an annualised inflation rate of 3.8%. This marks the first lift in annual inflation since the December 2022 quarter. The monthly CPI indicator grew at 3.8% in June 2024 compared to 4.0% in May.
USA: The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1% on a seasonally adjusted basis, after being unchanged in May, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 3.0 % before seasonal adjustment.
EU: Euro area annual inflation is expected to be 2.6% in July 2024, up from 2.5% in June according to a flash estimate from Eurostat. Looking at the main components of euro area inflation, services are expected to have the highest annual rate in July (4.0%, compared with 4.1% in June), followed by food, alcohol & tobacco (2.3%, compared with 2.4% in June).
Consumer Confidence:
The Westpac–Melbourne Institute Consumer Sentiment Index dipped 1.1% to 82.7 in July from 83.6 in June. Sentiment remains stuck in the same deeply pessimistic range that has dominated for two years now. The July update shows that fears of persistent inflation and further interest rate rises are again weighing more heavily on the consumer mood, offsetting any boost from the arrival of the ‘stage 3’ tax cuts and other fiscal support measures. While these measures came into effect from July 1, many consumers would not have seen any cash flow impacts so far given that payment cycles – for both incomes and for the electricity and rent expenses set to receive more cost of living support – are often fortnightly or monthly.
Employment:
Australia: Australia’s seasonally adjusted unemployment rate remained at 4.0% in June 2024.
USA: The unemployment rate rose to 4.3% in July, and nonfarm payroll employment edged up by 114,000. Employment continued to trend up in health care, in construction, and in transportation and warehousing, while information lost jobs.
Purchasing Managers Index:
The headline seasonally adjusted Judo Bank Australia Manufacturing Purchasing Manager’s Index (PMI) posted 47.5 in July, up from 47.2 in June. This indicated a sixth successive monthly deterioration in manufacturing sector conditions, albeit at a slightly slower pace than in June. Results above 50 points indicate expansion, with higher results indicating a faster rate of expansion.
US Services PMI:
The S&P Global US Services PMI was revised lower to 55 in July 2024 from a preliminary of 56, compared to 55.3 in June. The reading continued to point to a marked expansion in the services sector, although the rate of growth eased slightly.
US Global Manufacturing PMI:
The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI®) fell to 49.6 in July from 51.6 in June, below the 50.0 no-change mark for the first time in seven months and signalling a slight deterioration in the health of the manufacturing sector.
Sources: ABS, AFR, AWE, BLS, CoreLogic, Macquarie MWM Research, RBA, TradingEconomics, UBS, Wealth Data.
Comments
The carnage in the EV industry is only just getting started..
‘Bloodbath’ is used too often in business journalism. But it may be the only word to describe the state of the Western EV industry
The opinion piece from The Telegraph London’s Matthew Lynn highlights the many problems facing the electric vehicle industry. We have surmised his main points below.
Profits at the German auto giant Mercedes plunged in July as sales of its slick new range of electric vehicles went into freefall.
Porsche abandoned its sales targets for battery-powered cars amid waning demand from customers. Ford is losing nearly $US50,000 ($A76,000) on every EV it sells, while Tesla’s profits dropped 45%. Meanwhile, battery manufacturers such as Germany’s Varta are getting wiped out.
It has become clear that the EV industry is on the brink of collapse. Hundreds of billions of euros, dollars and pounds have been pumped into this industry by political leaders and the subsidy junkies that surround them – and it is surely time they were held to account for the vast quantities of taxpayer cash that has been wasted.
There is too much capacity in the industry, with companies over-investing in too many factories and distribution centres. Demand for the end product has started to crumble, with consumers increasingly nervous over what may become obsolete technology. Insurance and maintenance costs are proving far higher than expected for many, once the vehicles are actually on the road.
In 2019, France’s President Macron grandly announced a Franco-German plan to dominate battery production, with €700 million ($A1.1 billion) invested by France and another €1 billion in Germany.
The EU proudly boasts that €80 billion has been invested in the “EV value chain” as part of its Green New Deal, but when the books are finally opened it is unlikely they will be good.
The situation is even worse in the US. The Biden administration recently awarded nearly $US2 billion in grants to help restart or expand EV manufacturing and assembly sites across eight states.
It has offered tens of billions in subsidies of more than $US7,000 per vehicle sold, and even more in building the infrastructure, including one $US7.5 billion scheme to install chargers that ended up with only seven actually built (which works out at more than $US1 billion each for what is basically just a plug).
Even in the UK, where the political class was largely too incompetent to back any projects, money was poured into the ill-fated Britishvolt project, and it remains to be seen how much is finally given to India’s Tata for its new EV battery factory in Somerset.
Economists have long warned that net zero provides a golden opportunity for waste and rent-seeking. But some elites chose not to listen. We should start holding them accountable. Lobbyists argued for the subsidies, civil servants supported them, and finance ministers enthusiastically virtue signalled with other people’s money.
But too much investment creates overcapacity. Markets are better at deciding which technologies work than politicians, and if there is a genuine demand for a product then no one has to receive a grant to manufacture it, since the potential profits to be made will be incentive enough.
The carnage in the EV industry is only just getting started, and already it has cost billions.
Sources: AFR, The Telegraph
How tight is the labour market still?
The RBA’s communication on the outlook for monetary policy has focused on a ‘narrow path’ where inflation declines but unemployment doesn’t increase too much. The policy trade-off for the RBA is that it needs more labour market slack (i.e., higher unemployment) to slow wages growth and so inflation. Ever since the RBA adopted inflation targeting in 1993 it has set monetary policy with employment outcomes at the heart of decision making. The RBA’s focus on employment in the currency cycle is nothing new. It’s business as usual.
Labour force participation is at its highest level ever, driven by surging women’s employment. Casual work is at its lowest rate in a decade, and unemployment is at its lowest sustained levels in half a century.
While this strong labour market has underpinned Australia’s recovery from the disruptions of the pandemic, it has been challenging for employers.
Businesses have struggled to fill roles, as unfilled vacancies doubled to their normal levels. Job turnover has increased as employees exploit a buyer’s market for new opportunities. And wages have exploded, growing at their fastest rate since the mining boom.
Unemployment has been very low since the pandemic – consistently below 4.0%. This was due to a combination of strong employment generation associated with pandemic recovery, alongside labour shortages caused by a lack of migration due to closed borders throughout 2020 and 2021.
However it can be seen that the labour market it starting to turn, with some economists backing the unemployment rate to hit 4.5% by December 2024. Data from Seek (the job advertisement company) has shown that applicants per job ad are up by 67.7% over the year, attributed largely to the increased competitiveness within the labour market as a result of higher advertised salaries. Mix this in with higher interest rates within the economy putting increased economic pressure on Australians, a gradual easing should be around the corner.
The pandemic introduced considerable volatility within the labour market but the distinct relationship between labour spare capacity and wage growth has reemerged. Other critical factors remain for inflation to reach its target of 2.5%, especially if productivity and inflation expectations manage to remain anchored, but this is in no way guaranteed. The labour market appears on track, but all eyes will continue to remain on inflation levels.
Sources: ABS, AFR, AI Group, Challenger Group
The information in this document is general advice only. Before acting on any of the general advice you should consider if it is appropriate for you based on your personal circumstances. Level One Financial Advisers Pty Ltd AFSL 280061.