Markets
Local:
The ASX200 index had a strong gain of 3.79% over November.
Global:
The S&P 500 advanced 5.9%.
The Dow Jones Industrial Average surged 7.7%
The Nasdaq Composite added 6.3%
The biggest winner for the month was the small-cap Russell 2000 index, which surged 11.0% over November.
The Stoxx Europe 600 Index added 1.2%.
Gold:
The price of gold took a breather from its historic run, shedding 3% in November and ending the month at a price of $2,651.10 per ounce in US Dollars.
Iron Ore:
Iron ore price continued its push higher as it ended November at US $105.31 per/Mt.
Oil:
Brent crude oil rose 1.4% in November to US $74.27 per barrel as of November 25th.
Property
Housing:
CoreLogic’s national Home Value Index (HVI) rose by just 0.1% in the last month of spring, the weakest Australia-wide result since January 2023.
This marks the 22nd straight month of growth, but it could be close to the last in this cycle.
“The downturn is gathering momentum in Melbourne and Sydney,” said Tim Lawless, CoreLogic’s research director. “While the mid-sized capitals, which have dominated the growth cycle of late, are also losing steam.”
Melbourne, where housing values have fallen over ten of the past twelve months, recorded a -0.4% fall over the month, taking values -2.3% lower over the past year.
For Sydney, August likely marked the peak of the cycle, with values flattening in September and falling -0.2% in October and November.
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:
Retail sales throughout the month of October were up 3.4% year-on-year according to the latest data from the Australian Bureau of Statistics (ABS). Retail turnover rose 0.6% in October. This comes after growth of 0.1% in September 2024 and 0.7% in August 2024.
Bond Yields:
Australia’s 10-year Government bond yield dipped slightly in November to finish the month at 4.37%.
US 10-year Government bond yield fell slightly in November to finish the month at 4.18%
Cryptocurrencies:
Cryptocurrency prices soared in November. The price of Bitcoin jumped 34.7% in November to $97,453.25 and came close to the key $100,000 threshold. Ethereum advanced 35.4% in November to $3,598.19. These significant single-month gains helped propel Bitcoin and Ethereum’s year-to-date totals. Bitcoin is now 130.8% higher on the year, and Ethereum is up 56.8% in 2024.
Exchange Rate:
The Aussie dollar remained steady in November against both the American dollar, at $0.652, and the Euro at $0.617.
Inflation:
Australia: The monthly Consumer Price Index (CPI) indicator rose 2.1% in the 12 months to October 2024, according to the latest data from the Australian Bureau of Statistics (ABS). Michelle Marquardt, ABS head of prices statistics, said: “Annual inflation was steady at 2.1% in October and remains the lowest annual inflation since July 2021.” The top contributors to the annual movement at the group level were Food and non-alcoholic beverages (+3.3%), Recreation and culture (+4.3%), and Alcohol and tobacco (+6.0%).
USA: The consumer price index increased 0.2% in October, taking the 12-month inflation rate up to 2.6%. Both numbers were in line with expectations. The core CPI accelerated 0.3% for the month and was at 3.3% annually, also meeting forecasts.
EU: Euro area annual inflation is expected to be 2.0% in October 2024, up from 1.7% in September 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 October (3.9%, stable compared with September), followed by food, alcohol & tobacco (2.9%, compared with 2.4% in September), non-energy industrial goods (0.5%, compared with 0.4% in September) and energy (-4.6%, compared with -6.1% in September).
Consumer Confidence:
The Westpac–Melbourne Institute Consumer Sentiment Index rose 5.3% to 94.6 in November from 89.8 in October. The consumer recovery gained more traction through October-November, but the survey detail suggests some of this momentum has been checked by renewed uncertainty following the US election.
Employment:
Australia: In trend terms, in October 2024: The unemployment rate remained at 4.1%, the participation rate increased to 67.2% and employment increased to 14,541,200.
USA: Total nonfarm payroll employment rose by 227,000 in November, and the unemployment rate changed little at 4.2%. Employment trended up in health care, leisure and hospitality, government, and social assistance. Retail trade lost jobs.
Purchasing Managers Index:
The Judo Bank Australia Manufacturing PMI rose to a six-month high of 49.4 in November 2024, as expected, from October’s 47.3. While production and new orders, including exports, continued to decline, the rates of contraction eased. Business sentiment improved significantly, reaching the highest optimism level since January 2023, which spurred employment growth for the first time in six months. Despite rising optimism, firms remained cautious, reducing inventories and buying activity due to subdued demand. 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 rose to 57 in November of 2024 from 55 in the previous month, well above market expectations of 55.2, to mark the sharpest expansion in the US services sector activity since March of 2022. The reading extended the strong momentum for the sector despite the prolonged period of restrictive rates by the Federal Reserve, adding leeway for the central bank to hold off on jeopardizing its fight against stubborn inflation.
US Global Manufacturing PMI:
The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI®) remained below the 50.0 no-change mark in November, but at 49.7 pointed to only a marginal worsening in the health of the sector during the month. The reading was up from 48.5 in October and the highest in the current five-month sequence of deteriorating business conditions.
Sources: ABS, AFR, AWE, BLS, CoreLogic, Eurostat, IFA, Macquarie MWM Research, RBA, TradingEconomics, UBS, Wealth Data.
Comments
House Prices Trending Down in Sydney
House prices are now falling across two out of every five Sydney suburbs, a five-fold increase from a year ago, and the highest level in 20 months.
The share of Melbourne suburbs where house values dropped in the past three months also blew out to 76.3%, six times higher than last year.
Tim Lawless, CoreLogic’s research director, said the downturn was becoming more widespread as stock levels rose, borrowing capacity shrank and affordability worsened.
“We’re now seeing a fairly broad-based, but so far, mild downturn,” he said. “Sydney is still in the early phase of the downswing, so we’ll probably see more suburbs where house prices drop in the coming months.”
Sydney home values fell by 0.1% last month, the first monthly decline in almost two years, while Melbourne dipped by 0.2% as the housing outlook dimmed.
Louis Christopher, SQM Research managing director, said house prices in both cities were on track to fall further in the coming months.
“Auction clearance rates are now falling in Sydney, well beyond the seasonal weakness, and we’re seeing a marked increase in distressed selling across Melbourne,” he said.
“There are now 1117 total distressed listings in Melbourne as of November 6, which is the highest level since we started tracking in 2020.
“In the past year distressed selling surged by 28.4%, which tells me there are more property owners that are struggling financially, as confirmed by the rising default rates,” Mr Christopher said.
Moody’s Ratings analysis showed mortgage delinquency rates increased across the country over the year to May. Melbourne emerged as the epicentre of arrears. The portion of mortgage defaults across the city increased by 0.73 of a percentage point to 2.54%, just behind Hobart, which posted a 1.3 percentage point rise in arrears to 2.68%.
Melbourne dominated the top 20 suburbs with the highest mortgage default rates. Fourteen suburbs posted delinquency rates as high as 5.37%. By contrast, many suburbs with the lowest default rates were in Brisbane and Sydney.
What is still to come?
Sydney and Melbourne housing prices could fall by 5% in 2025, driven lower by a glut of listings, unaffordable prices and high interest rates, the latest Housing Boom and Bust report by SQM Research predicts.
Property prices in Canberra and Hobart are also predicted to drop by up to 6% and 3% respectively.
SQM Research managing director Louis Christopher said the bulk of the forecast price falls would occur in the first half of next year before interest rate cuts, which are expected by the June 2025 quarter.
“Current interest rate settings are biting the community more in these cities which, on our measurements, are in overvalued territory and/or are experiencing slower economic growth compared to the cities and states that have enjoyed good economic growth,” he said.
“However, once interest rate cuts do occur, we are expecting a speedy bounce in demand for Sydney and Melbourne in particular, which both are still experiencing underlying housing shortage relative to the strong population growth rates.
Paul Bloxham, HSBC’s chief economist said the risk of the Reserve Bank not cutting interest rates has increased.
“On a core basis, the economy is still operating a bit beyond its full capacity, and the very slow decline in inflation means the RBA really can’t consider cutting interest rates anytime soon.”
“The job market is still at, or slightly beyond full employment and does not appear to be loosening further at this stage.
“If it turns out the job market is not loosening further, then rate cuts may not happen at all. At the moment, we think there is a 25% chance that interest rates don’t get cut at all in 2025.”
Oxford Economics senior economist Maree Kilroy said while interest rate cuts could be delayed until June next year, they would be deeper than what the market was predicting.
“We’re expecting the RBA to slash the cash rate by a total of 1.25 percentage points to bring it back to neutral settings,” she said.
“This will improve mortgage affordability and help price growth in the following year.”
Sources: AFR, CoreLogic, SQM
US Election – Implications for Australia
Donald Trump has been elected the 47th President of the United States. The Republican Party has won control of the Senate and is on-track to maintain or expand a majority in the House of Representatives.
There is a risk that some of president-elect Trump’s policy proposals have an adverse effect on the US economy and on the global economy.
The most significant policy proposals outlined by the Trump campaign relate to higher import tariffs, corporate and personal income tax cuts, immigration, climate change and energy, and foreign policy.
In the immediate aftermath of the election, US stock prices have risen, the US dollar has strengthened and yields on 10-year Treasuries have climbed. Economic growth in the US economy could accelerate in the short term on the back of greater certainty, rising confidence, and proposed deregulation and tax cuts.
However, several factors may potentially slow US economic growth in the medium to long term. These include higher government debt, increased trade frictions, labour market shortages, higher inflation, and general uncertainty.
Donald Trump has proposed a universal tariff of 20% on all imports into the US, and a tariff of at least 60% on goods imported from China. If implemented as proposed, the average US tariff rate will increase sharply (see Chart 1). Higher tariffs, which could become a reality as early as the second quarter of 2025, are likely to weigh on US producers and consumers by increasing prices and slowing domestic demand. Weaker demand for imports is expected to strengthen the US dollar.
Trump has also proposed extending corporate and individual tax cuts due to expire in 2025, alongside further cuts for US manufacturers. Tax cuts would be a powerful short term economic stimulant but are also likely to add to US federal government debt. Higher national debt is expected to slow economic growth in the medium to long term by crowding-out private investment, limiting further public investment, and by putting long-term upward pressure on taxes.
Trump’s campaign also proposed the deportation of millions of undocumented immigrants, a withdrawal from The Paris Agreement (for a second time), and trimming incentives that encourage the green transition. All these proposals may be highly disruptive to the US economy which may become more susceptible to the risks of climate change and economic shocks.
What does this mean for Australia’s economy?
The implications for Australia are likely to be through trade and exchange rate channels.
A third of Australia’s exports go to China, and a US-imposed 60% tariff on Chinese goods could exacerbate a structural slowdown there. Slower growth in China is likely to weigh on economic growth in Australia. Subdued demand for iron ore and other raw materials may lead to a deterioration of Australia’s terms of trade.
Tariffs, expansionary fiscal policy, and deregulation will push US interest rates up and strengthen the US dollar relative to the Australian dollar in the short term. A weaker terms of trade via lower prices for key Australian commodities such as iron ore would add to downward pressure on the Australian dollar.
The impact of Trump’s presidency on inflation and short-term interest rates in Australia remains uncertain. A weaker Australian dollar and an inflationary impulse from the US is likely to be counterbalanced by a deflationary impulse from China. Long-term Australian interest rates may be pushed up by higher yields on US 10-year Treasuries, but this is also likely to be counterbalanced by expectations for slower growth.
Much will depend upon how policy proposals are enacted in the US. However, one thing is for sure: uncertainty and volatility are likely to be key words while discussing the global economy in 2025.
Sources: Deloitte, U.S. International Trade Commission
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.