Markets
Local:
The ASX200 index had a slight gain of 0.47% over August.
Global:
The S&P 500 rose 2.4% in August.
The Dow Jones Industrial Average advanced 2%.
The Nasdaq Composite added 0.7%.
The one laggard was the small-cap Russell 2000 index which, after surging 10.2% in July, retreated 1.5% in August.
The Stoxx Europe 600 Index added 1.6%.
Gold:
Gold reached an all-time high of US $2531.70 /oz in August of 2024.
Iron Ore:
Iron ore price first declined and then traded within the range of $100-120/Mt during much of the first half of CY24.
Oil:
Brent Oil price continued its decline in August reaching US $76.93 /bbl.
Property
Housing:
CoreLogic’s September Home Value Index (HVI) increased 0.5% in the month of August, representing the 19th consecutive month of increase in home values. However, the pace of growth is showing clear signs of slowing with the quarterly increase in national home values (1.3%) now less than half the rate of growth in the same three month period of 2023 (2.7%).
Capital growth across the cities remains diverse. Monthly gains were led by a 2.0% increase in Perth, followed by strong rises of 1.4% in Adelaide and 1.1% in Brisbane. Monthly growth in Sydney was a mild 0.3%. Four capital cities saw a monthly decline in home values, led by a -0.4% dip in Canberra, -0.2% in Melbourne and Darwin, and a mild -0.1% fall in Hobart.
Economy
Interest Rates:
At its last meeting in August 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 next board meeting is not until 24th September 2024.
Retail Sales:
Retail sales in Australia were unchanged in July 2024 and rose 2.3% compared with the same period 12 months prior.
Bond Yields:
Australia’s 10-year Government bond yield is currently 3.97%, as of 30 August 2024.
US 10-year Government bond yield fell slightly in August to finish the month at 3.91%.
Bitcoin:
Bitcoin (BTC) price again reached an all-time high in 2024, as values exceeded over 73,000 USD in March 2024. That particular price hike was connected to the approval of Bitcoin ETFs in the United States. The price of Bitcoin is expected to be more volatile in the coming months and will be highly correlated to the outcome of the US presidential election.
Exchange Rate:
The Aussie dollar recovered slightly in August against the American dollar, at $0.681, and gained slightly against the Euro at $0.614.
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) increased 0.2% on a seasonally adjusted basis, after declining 0.1% in June. Over the last 12 months, the all items index increased 2.9%
EU: Eurozone annual inflation fell to 2.2% in August 2024, yet core inflation, driven by persistent services costs, remains stubborn, the ECB’s Isabel Schnabel urges caution regarding potential rate cuts.
Consumer Confidence:
The Westpac–Melbourne Institute Consumer Sentiment Index rose 2.8% to 85 in August from 82.7 in July. Consumers breathed a small sigh of relief in August as the RBA Board left interest rates unchanged and the support coming from tax cuts and other fiscal measures became more apparent. That said, the Index remains at weak levels by historical standards, stuck in the 78–86 range that has prevailed for over two years now. The survey detail shows that cost of living and rate rise concerns are still weighing heavily.
Employment:
Australia: The seasonally adjusted unemployment rate rose 0.1 percentage point to 4.2% in July. Kate Lamb, ABS head of labour statistics said: “The unemployment rate rose to 4.2%in July, with the number of unemployed growing by 24,000 people and employed by around 58,000. This combined increase lifted the participation rate to a record high of 67.1%.
USA: Total nonfarm payroll employment increased by 142,000 in August, and the unemployment rate changed little at 4.2%. Job gains occurred in construction and health care.
Purchasing Managers Index:
The Judo Bank Australia Manufacturing PMI rose to 48.5 in August 2024 from 47.5 in July, remaining contractionary for the seventh consecutive month, although at the softest pace since May. The latest figure was also revised slightly lower from an initial reading of 48.7. Incoming new orders and production remained in contraction, though export orders expanded at the fastest pace in nearly two years. Results above 50 points indicate expansion, with higher results indicating a faster rate of expansion.
US Services PMI:
The seasonally adjusted S&P Global US Services PMI® Business Activity Index rose to 55.7 in August from 55.0 in July, signaling a marked monthly increase in service sector output, and one that was the most pronounced since March 2022. Activity has now risen in each of the past 19 months.
US Global Manufacturing PMI:
The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI®) posted 47.9 in August, down from 49.6 in July. The latest reading was the lowest since last December and signaled a second consecutive month of deteriorating manufacturing sector conditions.
Adviser Numbers:
According to Adviser Ratings’ Q2 2024 Musical Chairs Report, the latest quarter saw more than four advisers exit for every new entrant, noting a 1% decline in the total adviser population, despite 95 new entrants, landing at a total of 15,415 at the end of the quarter.
Sources: ABS, AFR, AWE, BLS, CoreLogic, Macquarie MWM Research, RBA, TradingEconomics, UBS, Wealth Data
Comments
Are we hiding the real inflation threat?
Economists and business leaders say state and federal governments have not done enough to help the Reserve Bank get inflation under control, warning households will only get genuine cost of living relief when interest rates come down.
Headline inflation fell to 3.5% in July as government energy rebates caused temporarily smaller electricity bills, but analysts said the figures would not be enough for the RBA to bring forward interest rate cuts amid broader strength in underlying price pressures.
State and federal government rebates caused electricity prices to fall by 6.4% in July, the Australian Bureau of Statistics reported. Without the rebates, electricity bills would have increased by 0.9%, suggesting government subsidies took 0.2 percentage points off headline inflation.
Headline inflation is expected to fall sharply again in August as more consumers receive $300 federal government energy bill credits, potentially sending headline inflation below 3% and back into the RBA’s target band. However, the RBA expects inflation to shoot higher to 3.7% in December next year when the subsidies end.
The latest ABS figures show underlying price pressures remain uncomfortably strong, underscoring the RBA’s concern about the persistence of high inflation.
“The distortions caused by the extension of the electricity subsidies is also fooling no-one, least of all the RBA,” Beta shares chief economist David Bassanese said.
RBA governor Michele Bullock has effectively ruled out cutting the cash rate from 4.35% this year given the ongoing strength of domestically generated inflationary pressures, particularly in the housing market. Rents increased 6.9% in the year to July, while the cost of building a new home grew by 5%.
EY’s Ms Murphy said subsidies could potentially lower consumers’ inflation expectations, which would be beneficial for the RBA, but they may also put extra cash in people’s pockets, which in turn could be harmful for inflation.
Unlike its global counterparts, the RBA is likely a long way from feeling confident in reaching its inflation target within a reasonable timeframe.
Sources: AFR, ABS, Deloitte
World Competitive Rankings 2024
The International Institute for Management Development (IMD) have published their World Competitiveness Rankings for 2024. This list analyses and ranks the capability of 67 countries to create and maintain an environment which sustains the competitiveness of enterprises. A country’s competitiveness is assessed based on four criteria: economic performance, government efficiency, business efficiency and infrastructure.
Australia placed 13th in the rankings this year, up from 19th in 2023, and our highest ranking since 2011. This is still lower than our performance from 2002 to 2011 – during which time we were consistently ranked among the top 10 countries – but Australia’s business competitiveness is improving from a COVID-era trough.
Of the four criteria, economic performance generally tends to be Australia’s strongest performing indicator, and in 2024 Australia ranked 5th on our terms of trade, 8th for real GDP growth, and 14th for long-term growth in employment. Australia’s strong commodity exports underpinned our high terms of trade, but other export-related indicators performed poorly, including our trade to GDP ratio (59th) and high concentration of export partners (58th). Inflationary pressures also remain a cause for concern, with Australia ranked 42nd when assessing the cost-of-living index. Australia’s central bank may be one of the last in the developed world to move to cutting interest rates, given current stubborn inflation pressures.
Business efficiency is still a weak point, with Australia placing 22nd overall. Though credit availability is good (ranked 7th) and corporate debt does not impair businesses (ranked 8th), Australia’s entrepreneurship and workforce productivity are poor, as we placed 61st and 48th respectively. The lack of productivity growth has lengthened Australia’s cost of living crisis, with wage growth failing to offset continuing price growth.
Australia’s infrastructure performance remains steady, ranked 18th in 2024, up from 20th in 2023. Strong public investment is evident in rankings for environmental agreements (1st), university education (7th), life expectancy (8th) and universal health coverage (9th). But we still have low internet bandwidth speeds (50th), poor communications technology (45th) and lacklustre investment in telecommunications (40th) – a result hardly befitting the legacy of the country responsible for inventing WiFi. Australia was also ranked 49th for renewable energy, and 47th for our energy infrastructure, both key areas to tackle as part of the green energy transition.
Australia needs to address housing affordability, and ensure dwelling construction keeps up with our population growth. There is also a need to lift productivity growth to improve living standards and place some downward pressure on prices while successfully navigating a clean energy transition remains.
Sources: CEDA, Deloitte, IMD
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.