Markets
Local:
The ASX200 index fell in April by -2.94%.
Global:
The S&P 500 fell -4.1% in its first monthly decline of 2024.
The NASDAQ also sank -4.4% in April 2024.
The Dow Jones Industrial Average tumbled -4.9%.
The Russell 2000 was one of the worst performers in April, plummeting -7%.
The pan-European STOXX® Europe600 dropped -0.8%.
Gold:
The spot price for Gold continued to trend higher, finishing the month at US $2290.71 per ounce.
Iron Ore:
Iron Ore price remained steady over April 2024 to finish the month at US $110.91 /Mt
Oil:
Brent Oil Prices stabilized in April finishing the month at US $87.25 /bbl, against a backdrop of easing tensions between Israel and Iran, anticipated delays in US rate cuts, and the potential for a cease-fire in the Middle East.
Property
Housing:
Australian home values continued to trend higher in April with CoreLogic’s national Home Value Index (HVI) rising 0.6%.
This was on par with the pace of gains recorded in both February and March, with the month-on-month rise adding approximately $4,720 to the national median dwelling value.
April’s increase takes the current growth cycle into its 15th month, with housing values up 11.1% or approximately $78,000 since the trough in January last year.
Economy
Interest Rates:
The Reserve Bank of Australia has kept the official interest rate on hold at 4.35% but indicates in its latest economic forecasts that rates will need to stay higher for longer to curb stubbornly high inflation.
Retail Sales:
Retail sales in Australia dropped by 0.4% MoM in March 2024, missing market estimates of a 0.2% growth, which was also a downwardly revised figure for February. It was the first decline in retail trade since last December as turnover fell in all industries.
Bond Yields:
Australia’s 10-year government bond yield rose slightly in April, to end the month at 4.25%.
The yield on the US 10-year government bond also rose in April, ending the month at 4.70%.
Bitcoin:
Over April, the cryptocurrency market has been notably volatile, with Bitcoin’s price dropping to as low as $60K. This downturn affected many altcoins, resulting in significant losses in value across the board. Despite these fluctuations, Bitcoin showcased its resilience by steadily regaining its value over time. This recovery underscores the inherent volatility of the digital asset sector, demonstrating the rapid pace at which market conditions can shift and stabilize within this dynamic environment.
Exchange Rate:
The Aussie dollar continued to remain level over April against the American dollar, at $0.653, and against the Euro at $0.610.
Inflation:
Australia: The consumer price index for the first three months of 2024 was 3.6% higher than a year earlier, slowing from the 4.1% annual pace in the December quarter. Economists had tipped CPI growth would drop to 3.5%. The March quarterly inflation rate was 1%, compared with the 0.6% pace in the December quarter. Economists had tipped it would rise to 0.8%.
USA: The consumer price index, a key inflation gauge, rose 3.5% in March, higher than expectations and marking an acceleration for inflation. Shelter and energy costs drove the increase. Energy rose 1.1% after increasing 2.3% in February, while shelter costs were higher by 0.4% on the month and up 5.7% from a year ago.
EU: Euro area annual inflation is expected to be 2.4% in April 2024, stable compared with March 2024. Looking at the main components of euro area inflation, services is expected to have the highest annual rate in April (3.7%, compared with 4.0% in March), followed by food, alcohol & tobacco (2.8%, compared with 2.6% in March), non-energy industrial goods (0.9%, compared with 1.1% in March) and energy (-0.6%, compared with -1.8% in March).
Consumer Confidence:
The Westpac Melbourne Institute Consumer Sentiment Index declined 2.4% to 82.4 in April, from 84.4 in March. The pessimism that has dominated the consumer mood for nearly two years now is still showing few signs of lifting. The latest Index read is well below the ‘neutral’ level of 100, meaning pessimists outnumber optimists by over 15ppts. It is also in line with the average recorded over the last 24 months, marking an extended period of bleak sentiment reads by historical standards.
Employment:
Australia: Australia’s seasonally adjusted unemployment rate ticked higher to 3.8% in March 2024 from February’s five-month low of 3.7% but below market forecasts of 3.9%. The number of unemployed individuals increased by 20.6 thousand to 569.9 thousand, with those seeking full-time jobs rising by 19.3 thousand to 371.3 thousand and those looking for part-time jobs adding by 1.3 thousand to 198.6 thousand.
USA: Total nonfarm payroll employment increased by 175,000 in April, and the unemployment rate changed little at 3.9%. Job gains occurred in health care, in social assistance, and in transportation and warehousing.
Purchasing Managers Index:
The Judo Bank Flash Australia Manufacturing PMI rose to 49.6 in April, up from 47.3 a month earlier, according to final estimates. It was the third consecutive monthly deterioration in manufacturing sector conditions, albeit at a marginal pace, the lowest in the current sequence. Incoming new orders for goods continued to contract, attributed to subdued market conditions and the impact of elevated interest rates. 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 fell for the third month running in April to 51.3 from 51.7 in March. The index pointed to a modest monthly increase in business activity, and one that was the slowest since last November.
US Global Manufacturing PMI:
The seasonally adjusted S&P Global US Manufacturing PMI posted in line with the 50.0 no-change mark in April to point to stable business conditions at the start of the second quarter. The reading was down from 51.9 in March and signaled an end to a three-month sequence of improving operating conditions.
Sources: ABS, AFR, AWE, BLS, CoreLogic, Macquarie MWM Research, RBA, TradingEconomics, UBS, Wealth Data
Comments
Australian Housing Market Update
Australian home values continued to trend higher in April with CoreLogic’s national Home Value Index rising 0.6%. The CoreLogic Daily Home Value Index (HVI) aims to measure daily movements in the value of Australian housing markets. Rather than relying solely on transacted sale prices to provide a measure of housing market conditions, the CoreLogic Daily Home Value Index is based on a ‘hedonic’ methodology which includes the attributes of properties that are transacting as part of the analysis.
This rise was on par with the pace of gains recorded in both February and March, with the month-on-month rise adding approximately $4,720 to the national median dwelling value.
April’s increase takes the current growth cycle into its 15th month, with housing values up 11.1% or approximately $78,000 since the trough in January last year. What makes this current price surge unusual is that it has occurred without the assistance of any cash rate reduction.
The mid-sized capital cities continue to lead the pace of growth. Perth remains at the top of the growth charts with a 2.0% rise in April, followed by Adelaide at 1.3% and Brisbane at 0.9%.The monthly change in Sydney values (+0.4%) has held reasonably firm around the 0.4% mark each of the past three months, while Melbourne’s market (-0.1%) has broadly stabilised after recording a subtle -0.8% dip over the three months to January.
Rate hikes, cost of living pressures and worsening housing affordability are all factors that would contribute to a theory of softer housing conditions since mid-last year. However, an undersupply of housing relative to demand continues to keep upwards pressure on home values despite these headwinds.
The diversity in housing value outcomes can be explained by significant differences in factors like housing affordability, demand-side pressures from population growth and shortcomings in housing supply. Focusing on the extreme growth conditions in Perth, despite such a rapid pace of capital gains, housing values remain relatively affordable compared with the larger capital cities. Housing remains in short supply and purchasing demand is still high due to interstate and overseas migration rates that are well above average.
The likelihood of rate cuts should provide support for decent house price growth in 2025. Growth is likely to be strongest in the markets that have seen the lowest growth over the past couple of years (Melbourne, Hobart, Canberra and Darwin).
We really do live in interesting times.
Sources: AFR, BOQ, CoreLogic
The Choppy US Inflation Numbers
The US Labour Department has recently reported that the CPI has risen 3.5% year-over-year in March 2024. This is up from a 3.2% year-over-year gain in February and above the 3.4% growth economists were expecting. On a monthly basis, the CPI was up 0.4% compared to February, above economist estimates of a 0.3% gain.
The CPI reading is the latest indicator that inflation may be stickier than anticipated in 2024, and investors are debating how much longer the Federal Reserve will need to maintain interest rates at 22-year highs to get inflation under control. Stock markets also reacted negatively to the news, dropping sharply after strong gains since the beginning of the year.
CPI growth hit a peak of 9.1% in 2022, but it trended lower at a somewhat steady pace in the first half of 2023. However, in late 2023 and early 2024, CPI inflation readings have been choppy and unpredictable.
Core inflation, which excludes volatile food and energy prices, was up 0.4% on a monthly basis in March and 3.8% from a year ago.
Other key metrics include:
Food prices were up 0.1% month-over-month and up 2.2% compared to a year ago.
Energy prices were up 1.1% on a monthly basis and 2.1% over the past 12 months.
Shelter prices were up 0.4% compared to February and 5.7% over the past 12 months.
The latest CPI numbers come after the Labor Department reported the U.S. economy added 303,000 jobs in March, well above economist expectations of 200,000 new jobs. The Labor Department also reported U.S. wages were up 4.1% year-over-year in March, but rising prices are preventing many Americans from getting more mileage out of their growing pay checks.
The Federal Reserve is navigating a difficult balancing act of maintaining tight monetary policies to bring down inflation without triggering a U.S. recession. Rising interest rates increase borrowing costs for companies and consumers, weighing on economic activity.
So far, the U.S. labour market has been solid, but the New York Fed’s recession probability model suggests there’s still a 58.3% chance of a U.S. recession within the next 12 months.
Federal Reserve officials have repeatedly emphasized the dangers of cutting interest rates too soon and triggering a potentially disastrous rebound in inflation. The hot labour market has seemingly underscored the need for the Federal Open Market Committee, (FOMC) the branch of the federal reserve system that determines the direction of monetary policy in the US, to proceed with caution. In fact, Federal Reserve Vice Chairman Roger Ferguson recently said he sees a 10% to 15% chance of no rate cuts at all in 2024.
Fortunately, the stock market is not putting much pressure on the Fed to cut rates. Despite interest rates weighing on corporate earnings, the S&P 500 made several new all-time highs in the first quarter of 2024.
Analysts project S&P 500 companies will report 3.2% earnings growth for the first quarter of 2024 as earnings season kicks off in the coming days. The utilities and technology sectors are expected to report the highest earnings growth in the quarter, while the materials and energy sectors are expected to report the largest earnings declines.
Fed chairman Jerome Powell has stressed that the central bank’s policymakers need more confidence that inflation is steadily slowing to the Fed’s 2% target.
The Australian economy is highly correlated to the US economy and will often be a precursor to how the markets react back home. I’m sure the RBA will be keeping a keen eye on the figures coming out on the US and will act accordingly over the next 6-12 months in line with the economic data being released in Australia. We are still walking on an economic tightrope and only time will tell if we have got current policy decisions correct and if a soft landing back to our 2-3% target range is achievable.