Markets
Local:
The ASX200 index had a retraction in October, falling 1.31% for the month.
Global:
The S&P 500 fell 0.9% in October.
The Dow Jones Industrial Average lost 1.3%.
The Nasdaq Composite slipped 0.5%.
The Russell 2000 index also lost 1.4%.
The pan-European STOXX® Europe 600 lost 3.2% after disappointing earnings figures from tech companies.
Gold:
Gold continued its 2024 run, adding another 4% in October, bringing its price per ounce in US Dollars to $2,734.20 as of October 31st 2024.
Iron Ore:
The average monthly iron ore price increased by 9.2% to US $101.4 per/Mt in October 2024.
Oil:
Crude oil prices dipped slightly in October as brent sank by 0.7% to US $71.87 per/bl.
Property
Housing:
CoreLogic’s national Home Value Index (HVI) recorded a 0.3% rise in October, the 21st month of growth since the cycle commenced in February last year.
The subtle positive movement was supported by the mid-sized capitals, led by Perth with a 1.4% rise over the month, offsetting declines in Darwin (-1.0%), Canberra (-0.3%), Melbourne (-0.2%) and Sydney (-0.1%), as well as regional Victoria (-0.2%).
As the market continues to cool, annual growth in national home values has continued to ease, reducing to 6.0% over the 12 months ending October, down from a recent peak annual growth rate of 9.7% in February.
Economy
Interest Rates:
The Reserve Bank has left its key interest rate unchanged for its eighth meeting in a row as it awaits more evidence that inflation will soon return to its preferred target range. The RBA board ended its two-day meeting in November by keeping its cash rate at 4.35%, a move widely expected by economists and financial markets. The board only considered the option of leaving the interest rate unchanged, matching the approach it took at its September meeting.
Retail Sales:
In September 2024, retail sales in Australia increased 0.1% month-on-month, which was below the market’s forecast of 0.3%. This was a slowdown from the previous month’s 0.7% growth.
Bond Yields:
October saw a sell-off in global government debt markets, with yields on 10-year benchmark notes increasing across the board. The month’s biggest mover was the Australian 10-year government bond, whose mid-yield rose by 54 basis points to 4.51% from 3.97% in September.
The US 10-year Government bond yield rose well over October to finish the month at 4.28% as speculation over the US presidential election continued.
Bitcoin:
The price of Bitcoin topped $70,000 for the first time since June, reaching $72,342.62 as of October 31st and gaining 10.2% in the month.
Exchange Rate:
The Aussie dollar remained steady in October against the American dollar at $0.67, and the Euro at $0.605.
Inflation:
Australia: The annual inflation rate dropped to 2.8% in Q3 2024 from 3.8% in Q2, steeper than market expectations of 2.9%. It was the lowest reading since Q1 2021, with goods inflation sharply slowing (1.4% vs 3.2% in Q2), mainly due to declines in electricity and fuel prices amid the continued impact of Energy Bill Relief Fund rebates.
USA: The annual inflation rate for the United States was 2.4% for the 12 months ending September, compared to the previous rate increase of 2.5%.
EU: The euro area annual inflation rate was 1.7% in September 2024, down from 2.2% in August. A year earlier, the rate was 4.3%. European Union annual inflation was 2.1% in September 2024, down from 2.4% in August. A year earlier, the rate was 4.9%.
Consumer Confidence:
The Westpac–Melbourne Institute Consumer Sentiment Index rose 6.2% to 89.8 in October from 84.6 in September. This is the most promising update we have seen over the cycle to date. While pessimism still dominates, the October consumer sentiment read is the best since the RBA interest rate tightening phase began two and a half years ago. Expectations have been buoyed by interest rate cuts abroad and more promising signs that inflation is moderating locally. Consumers are no longer fearful that the RBA could take interest rates higher. However, responses around family finances suggest progress on cost-of-living pressures – the main source of negative sentiment reads overall – is still slow.
Employment:
Australia: As of September 2024, Australia’s unemployment rate was 4.1%. This was a steady rate for the second month in a row.
USA: Total nonfarm payroll employment was essentially unchanged in October (+12,000), and the unemployment rate was unchanged at 4.1%. Employment continued to trend up in health care and government. Temporary help services lost jobs and employment declined in manufacturing due to strike activity.
Purchasing Managers Index:
The Judo Bank Australia Manufacturing PMI registered at 47.3 in October, an increase from 46.7 in September, marking the ninth consecutive month of declining manufacturing conditions. New orders fell sharply, extending the contraction to nearly two years, while export orders decreased more significantly due to reduced demand from key markets. Production also declined but at a slower pace than in September, with manufacturers clearing outstanding work at the fastest rate since May 2016. 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 slightly lower to 55 in October 2024 from a preliminary of 55.3 and compared to 55.2 in September. The reading showed US service providers continued to expand their business activity at a marked although slightly slower rate.
US Global Manufacturing PMI:
The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI®) posted 48.5 in October, up from 47.3 in September but below the 50.0 no-change mark for a fourth consecutive month. The latest reading indicated that business conditions deteriorated modestly, albeit to the least extent since July. New orders decreased for the fourth month running in October, and at a solid pace. Respondents indicated that uncertainty around the Presidential Election had been a common cause of a drop in new orders as customers hesitated before committing to new projects.
Adviser Numbers:
According to Wealth Data analysis, there was a net loss of 11 advisers in the week ending 24 October 2024, with total adviser numbers now standing at 15,512.
Sources: ABS, AFR, AWE, BLS, CoreLogic, IFA, Macquarie MWM Research, RBA, TradingEconomics, UBS, Wealth Data
Comments
Feb rate cut hopes soften after September employment figures
Australia’s period of falling unemployment came to an end in early 2019 when the jobless rate hit a low of 4.9%. It then averaged around 5.2% through to March 2020, bouncing around in a range from 5.1% to 5.3%. Leading indicators such as ANZ-Indeed’s Job Ads survey and NAB’s capacity utilisation estimate suggested the unemployment rate would rise in the June 2020 quarter and it did so, sharply. The jobless rate peaked in July 2020 but fell below 7% a month later and then trended lower through 2021 and 2022.
The latest Labour force figures have now been released and they indicate the number of people employed in Australia according to ABS definitions increased by 64,100 in September. The result was greater than the 22,300 rise which had been generally expected and up from August’s downwardly-revised increase of 42,600.
“After having slowed gradually over the past two years, employment growth looks to have stabilised at a robust level,” said Westpac economist Ryan Wells. “On a three-month average basis, employment is tracking 2.9% per year, a similar pace to what was seen at the turn of the year.”
Expectations regarding rate cuts in the next twelve months softened, with a February 2025 rate cut now less likely. Cash futures contracts implied an average of 4.31% in November, 4.25% in December and 4.23% in February 2025. September 2025 contracts implied 3.67%, 67bps less than the current cash rate.
“The strength in employment does present a degree of tension with the ongoing soft pace of GDP growth,” noted ANZ Head of Australian Economics Adam Boyton. “While hours worked had been running softer than employment growth, hours worked is now recorded as being up 2.4% year on year. That implies either a pick-up in GDP growth in the September quarter or a continuation of Australia’s weak productivity performance.
The participation rate hit a new series-high of 67.2% as the total available workforce increased by 54,900 to 15.137 million. The number of unemployed persons decreased by 9,200 to 615,700 but the unemployment rate remained steady at 4.1% after rounding and revisions.
More attention has been paid to the underemployment rate in recent years, which is the number of people in work but who wish to work more hours than they do currently. September’s underemployment rate declined from 6.5% to 6.3%, 0.4 percentage points above this cycle’s low.
Sources: ANZ, YieldReport, NAB
Are Residential Construction Costs Holding us Back?
The Q3 2024 national Cordell Construction Cost Index (CCCI), which tracks the cost to build a typical new dwelling, is up from a 0.5% rise over the June quarter and is the strongest quarterly increase seen from the three months since December 2022 hitting 1.9%.
The 12 months ending September saw costs rise 3.2%, up from 2.6% over the 12 months to June, although down from this time last year at 4.0%.
CoreLogic Economist Kaytlin Ezzy said the data would likely put additional pressure on the Federal Government’s target of 1.2 million new homes.
“With the official start date for the Government’s target for 1.2 million new well-located homes over five years kicking off in July, the recent re-acceleration of the CCCI could put additional pressure on an already difficult-to-achieve goal.”
“Over the year to June, approximately 176,000 dwellings were completed, -26.6% below the 240,000 annually needed to fulfil the target.”
“While 250,000 homes remain within the construction pipeline nationally, the sluggish flow of new dwelling approvals suggests a shortfall of projects once the backlog is worked through.”
In August, national monthly dwelling approvals came in -17.9% below the decade average and -30.0% under the 20,000-a-month target needed to achieve the Government’s goal.
On a state-by-state basis, the quarterly change in CCCI was highest in Queensland, recording the largest quarterly increase in construction costs (1.1%), accelerating from the 0.3% lift seen over the June quarter.
New South Wales and Western Australia saw construction costs rise 1.0%, in line with the national growth rate, while Victoria and South Australia tied for the smallest quarterly increase, both up 0.8% over the quarter.
CoreLogic Construction Cost Estimation Manager John Bennett said building materials costs had stabilised, with minimum increases and decreases being recorded for the quarter.
He said categories such as timber products, building permit and application costs, plant hire and rainwater products demonstrated little movement for the quarter, while masonry, cement sheet products, joinery, plumbing material (mainly copper) and general waste disposal all showed slight increases. “This quarter has shown no standout specific trends in the market for construction cost materials. We fully expect this to continue for the coming months,” Mr Bennett said.
The latest Consumer Price Index (CPI) data from the Australian Bureau of Statistics (ABS) showed the CPI rose a further 1.0% over the June quarter, following a 1.0% rise over the March quarter.
The ABS noted that new dwelling purchases by owner-occupiers rose by 1.1% as builders continued to pass on higher labour and building material costs to buyers.
They also noted stronger rises in Perth and Adelaide new dwelling prices over the June quarter, reflecting higher demand for new homes in these cities, as well as high labour and material costs.
Commenting on the data, Ms Ezzy added: “Residential building costs make up the largest share of the housing component of the consumer price index.”
She added, “As a forward indicator, the recent re-acceleration in the CCCI is concerning for the new homes component of the CPI, as the two series are highly correlated. This may partially offset the impact of slowing rent growth on housing inflation”
Additionally, the increase will be unwelcome news for builders, who are still working to repair profit margins. Although the latest quarterly rise aligns with the pre-Covid decade average (1.0%), overall construction costs have surged 29.5%, putting significant pressure on the feasibility of many projects.
Sources: ABS, CoreLogic
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.