Markets
Local:
The ASX200 had a strong April rising 1.85% over the month. Investor sentiment improved with the RBA`s decision not to increase interest rates for the first time in a year.
Global:
The S&P 500® was up 1.46% in April, bringing its YTD return to 8.59%.
The Dow Jones Industrial Average® rose 2.48% for the month and was up 2.87% YTD.
The Stoxx Europe 600 Index rose 2.6% in April.
Gold:
The spot price for Gold continued to be stable reaching $1,987 at the end of April. After reaching $1,980 in March. Investors are expecting that interest rates will likely reach near their peak in this tightening cycle which is being factored into the price.
Iron Ore:
Iron Ore price dropped significantly by US $22 to reach US $105/Mt as expectations of long term weaker demand are starting to be factored in.
Oil:
Brent Oil price remained steady over the month to remain at US $80/bbl.
Property
Housing:
After falling -9.1% between May 2022 and February 2023, Australian housing values look to have bottomed out, posting a second consecutive monthly rise. CoreLogic’s national Home Value Index (HVI) increased by half a percent in April, following a 0.6% lift in March to be 1.0% higher over the past three months.
According to CoreLogic’s Research Director, Tim Lawless, it is becoming increasingly clear the housing market has moved through an inflection point. “Not only are we seeing housing values stabilising or rising across most areas of the country, but a number of other indicators are also confirming the positive shift. Auction clearance rates are holding slightly above the long run average, sentiment has lifted, and home sales are trending around the previous five-year average.”
Economy
Interest Rates:
The Reserve Bank of Australia raised interest rates to 3.85% at the start of May, stunning economists and markets, which were predicting almost no chance of an increase just one month after the central bank hit pause.
Retail Sales:
Retail sales in Australia increased by 0.4% month-over-month to AUD $35.30 billion in March 2023, faster than a 0.2% growth in the prior period. It was the third consecutive rise in retail trade, as food retailing continued to perform strongly.
Bitcoin:
Bitcoin continued its steady increase to finish April at USD $29,217.94.
Bond Yields:
Both the Australian government 10-year bond and US government 10-year bond remained steady from the previous month. At 3.23% and 3.45% respectively.
Exchange Rate:
The Aussie dollar fell slightly in April against both the American dollar at $0.66 and the Euro at $0.60.
Inflation:
Australia: The Australian monthly CPI indicator rose 6.3% in the year to March 2023, which is lower than the 6.8% movement in February and the 7.4% movement in January. On an annual basis, CPI inflation increased 7.0% in the March 2023 quarter, which is lower than the rises of 7.8% in December 2022 and 7.3% in September 2022.
USA: The consumer price index eased to 5% in March 2023 on an annual basis, down from 6% in February, according to the U.S. Bureau of Labor Statistics inflation report.
EU: Euro area annual inflation is expected to be 7.0% in April 2023, up from 6.9% in March according to a flash estimate from Eurostat.
Consumer Confidence:
The Westpac Melbourne Institute Consumer Sentiment Index increased by 9.4% in April from 78.4 in March to 85.8 in April. This strong recovery in the Index can be largely attributed to the decision by the Board of the Reserve Bank to break the sequence of ten consecutive meetings when the cash rate was increased by deciding to pause at the April meeting.
Employment:
Australia: Australia’s seasonally adjusted unemployment rate stood at 3.5% in March 2023, unchanged from February’s near 50-year low but below market estimates of 3.6%. The number of unemployed declined by 1,600 to 507,000, as people seeking full-time jobs fell by 3,100 to 339.200 while those looking for part-time jobs climbed by 1,400 to 167,800.
USA: Total nonfarm payroll employment rose by 253,000 in April, and the unemployment rate changed little at 3.4%. Employment continued to trend up in professional and business services, health care, leisure and hospitality, and social assistance.
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:
Australia’s manufacturing sector has signaled a deepening downturn with its headline seasonally adjusted purchasing manager’s index (PMI) at 48.0 in April, down from 49.1 in March. This signaled a second straight month-on-month deterioration in overall business conditions, the first back-to-back downturn in the sector since the start of the pandemic in March-May 2020.
US Services PMI:
The S&P Global US Services PMI was revised slightly down to 53.6 in April of 2023 from a preliminary of 53.7 but continued to point to the biggest expansion in the services sector in a year, as output, new orders and employment growth all accelerated.
US Global Manufacturing PMI:
The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI™) posted 50.2 in April, up from 49.2 in March, and broadly in line with the earlier released ‘flash’ estimate of 50.4. The latest index reading was the first to post above the 50.0 neutral mark for six months and was the highest since October 2022.
Sources: ABS, AFR, AWE, BLS, CoreLogic, Macquarie MWM Research, RBA, TradingEconomics, UBS
Comments
The Long Inflation Roadmap
Recent inflation figures shows that inflation grew by 1.4% over the March quarter 2023, and 7.0% over the 12 month period. This confirms that we are past the peak of 7.8% seen in late 2022. The downward path has commenced but we are not expected to reach the RBAs target band of 2-3% for some time. With some forecasts pushing this to as late as 2025.
Supply constraints are becoming less of a driver of price pressures, but price growth is expected to remain sticky in some key domestic sectors. We are starting to move away from goods prices being the main contributor of inflation to a more even balance between goods and services.
The housing sector leads the way on annual price growth, with rental prices up 10.1% over the year to April 2023. This included the combined capitals annual rental increase of 11.7% in the past year which was a new record largely underpinned by increasing demand for capital city units.
The main cause of inflated rental prices is the extremely low rental vacancy rates across the country. The rental component of the CPI is expected to continue increasing as leases are re-negotiated throughout the next year.
Energy prices have also risen considerably, with gas and other household fuel prices increasing 26.2% over the year and electricity prices increasing 15.5% over the year. Power bills are expected to increase by up to 23.7% by July in New South Wales, South Australia and Queensland.
After 350 basis points of increases in the cash rate over the past 12 months, the Reserve Bank’s pause in April was a welcome breather to allow time to see the impact on both prices and the real economy so far. It will still take a considerable amount of time to get back into the inflation comfort zone of 2-3% per annum, but we are now heading in the right direction.
Sources: ABS, AFR, Deloitte
Why millennials should be mapping their retirement today
While millennials have for decades been treated like ‘the children of Neverland, who never grew up’, reality is fast catching up with this generation, who are now young adults between the ages of 24 and 40.
Like generations before them, they are now buying, or at least trying to buy, homes and starting families of their own. And with this, the stark reality is that their retirement is looming just around the corner in the early years of 2050.
For all too many, planning for their retirement is just something they don’t want to face. But the reality is that the sooner they start ‘mapping’ or preparing for their retirement, the better off they will be.
According to Investopedia, if you are a 26-year-old millennial, you should aim over the next four years to have at least one year’s worth of income in your superannuation fund. If you are a 40-year-old millennial, you should already have three times your annual income in super.
They suggest millennials should contribute at least 15 per cent of their gross salary, including the 10 per cent compulsory super guarantee contribution, to superannuation each year if they have any chance of achieving a secure retirement.
This seems a pipe dream for Marion, who is 29 and earns $95,000 a year as a successful professional accountant. While her employer contributes 10.5 per cent of her income to super, she has less than $100,000 in super, and is more focused on boosting her non-super savings of $75,000, so she can buy a small apartment. She is not alone.
Most millennials, burdened by HECS debts and increasingly casual employment arrangements, will find the need to boost their super contributions a challenge, especially as most millennials, like Marion, are also struggling to save a deposit for an ever more expensive home of their own.
They know they will live longer than previous generations and that health and living costs will be much greater for them in retirement, while social security entitlements will be much less than what their grandparents received.
Nonetheless, when asked, millennials want to retire earlier than previous generations and are looking for a different type of retirement. One where they can travel more while still enjoying doing so and keep working on a casual part-time basis, but only if they enjoy the work.
All of this means that amongst all the competing demands on their time and money, superannuation has to become part of the landscape of Neverland.
For Marion, it has meant searching for a better superannuation fund with lower fees and better investment options while scaling back her plans to buy an apartment and perhaps relying more on the Bank of Mum and Dad to help her do so.
As previous generations have done, millennials need to take control of their superannuation, and the sooner, the better.
The first step is to consolidate any multiple super accounts into one and then, wherever possible, boost their contributions to the magic 15 per cent mark.
Happily, most millennials, including those who are self-employed, will have a super fund and will only need to add an extra 5 per cent to take their total contributions to 15 per cent of their prevailing salary.
Then they can leave compound interest to work its magic and, like a snowball rolling down a hillside, build the balance within their super.
It’s then a matter of working closely with a qualified adviser who can ensure your superannuation stays on track and help you to achieve the best possible outcomes when you do start thinking seriously about retiring.