Market Wrap January 2021

Markets

• Market Performance – ASX200 rose 0.3% in January.
• Global – in the US the S&P500 index dropped 1% in January.
• Gold – dropped $23.80 to $1,863.80.
• Iron Ore – was steady at US $158.00/ton.
• Oil – rose to US$55.88/bbl up $4.08 in the month of January.

Property

• Housing – National CoreLogic national dwelling prices rose 0.7% month on month in January with houses gaining more than units again.
• Auction Clearance Rates – January data is always light on volume due to the holiday period, but clearance rates are rising with recent weeks seeing clearance rates above 80%.
• Building Approvals – the seasonally adjusted estimate for total dwellings approved rose by a strong 10.9% in December 2020.
• Finance – new loan commitments rose 8.6% for housing in December. This represents a massive 31.2% increase compared to December 2019. Construction loan commitments rose 17.1% in December, more than doubling since the June 2020 implementation of the Federal Government Homebuilder grant scheme.

Economy

• Interest Rates – remained at 0.10% in January – the lowest on record.
• RBA – the $100 billion of government bond buying program to lower rates for longer has now been extended further.
• Retail Sales – November retail sales surged 7.1%, while preliminary December sales fell 4.2%.
• Bond Yield – Australian 10 year government bond yields rose to 1.09% in January. US 10 year government bond yields rose by 17bps to 1.09%, also.
• Exchange Rates – the Australian Dollar dropped against the US Dollar to AUD76.7 cents.
• Business Conditions – lifted further to +14.2 in December.
• New Motor Vehicles – sales for December 2020 totalled 95,652. This is a 13.5% increase compared to the sales in December 2019. Toyota retained the biggest market share of sales of new vehicles in Australia.
• Employment – unemployment dropped to 6.6% in December. Employment to population ratio increased to 61.8%.
• Consumer Confidence – decreased in Australia in December. The Westpac Melbourne Institute Consumer Confidence Index dropped 4.5% to 107 following strong rises in October and November 2020.
• Chicago Purchasing Managers Index (PMI) increased to 63.80 in January up from 58.7 in December indicating strong growth in the US economy.
• US Unemployment – fell from 6.6% in December to 6.3% in January.
• COVID-19 – Global COVID cases passed 100 million in January.
• Inflation – was better than expected at 0.9% in the December quarter.  With ultra low interest rates and record government spending what happens to inflation as a result is the big unknown.

Comment

Reserve Bank

• The Reserve Bank of Australia (RBA) has announced an extension of its Bond Buying Program, committing an additional $100 billion to the initial $100 billion commitment.
• This is aimed at keeping interest rates at their current ultra low levels until at least 2024.
• The RBA has also forecast unemployment to drop to 6% from 6.3% during 2021 and down to 5.2% in 2022.

Savings in Australia

• In November 2020 we saw the combined stock of household and business savings/deposits climb to a massive $216 billion. This represents 11% of Australia’s GDP. This is huge.
• Household savings are at levels not seen since the 1970’s.
• What happens to these savings, whether they get spent or grow further will have profound implications for our economy and investment markets.

Sources: UBS, Westpac, S&P Dow Jones Indices, ABS, US BLS, CoreLogic, Morningstar.