Markets
Local:
Australian equities marked their 3rd straight month of gains during January, as the S&P/ASX 200 Total Return index rose 1.19%, setting a new all-time high in the process.
Global:
The S&P 500 continued to rise albeit at a slower rate in January 2024, rising by 1.68% following a 4.42% rise in December 2023.
The Dow Jones Industrial Average rose 1.22% for the month and was up 11.92% for the one-year period.
The Stoxx Europe 600 Index also rose by 2.7% over the month.
Gold:
The spot price for Gold continued its trend above the $2,000 USD mark to finish the month at $2,053.25 USD per oz.
Iron Ore:
Iron Ore price continued to trend upward, finishing January 2024 at $135.82 USD/Mt.
Oil:
Brent Oil price has remained steady in recent times, closing out January 2024 at $81.71 USD/bbl.
Property
Housing:
Australia’s housing upswing continued through the first month of 2024 with CoreLogic’s national Home Value Index (HVI) rising 0.4% in January. Up from the 0.3% increases seen in November and December, this marks the 12th straight month of value rises.
Beneath the headline result, housing market performance remains diverse around the country. Three capitals recorded a subtle decline over the month (Melbourne -0.1%, Hobart -0.7% and Canberra -0.2%), while Perth, Adelaide and Brisbane values continued to rise at the monthly rate of 1% or more.
Economy
Interest Rates:
The Reserve Bank of Australia left the cash rate on hold at 4.35%. The RBA has maintained its tightening bias, saying “further increase in interest rates cannot be ruled out”.
Retail Sales:
Australian retail turnover fell 2.7% in December 2023. This follows a revised rise of 1.6% in November 2023 and a fall of 0.2% in October 2023. Revisions to seasonally adjusted data are larger than usual this month, reflecting improvements in the data as the evolving seasonal pattern becomes clearer.
Bond Yields:
Australia’s 10-year government bond yield rose to around 4.1%, rebounding from one-month lows.
Yields on 10-year U.S. Treasuries dipped below 4% at the end of January, nearly 1% lower than where they stood in October.
Bitcoin:
The average closing price for Bitcoin (BTC) in January was $42,919.61. It was up 0.7% for the month.
Exchange Rate:
The Aussie dollar continued to remain steady at the start of 2024 against the American dollar, at $0.657, and against the Euro at $0.608.
Inflation:
Australia: The monthly Consumer Price Index (CPI) indicator rose 0.6% in the December 2023 quarter. Over the twelve months to the December 2023 quarter, the CPI rose 4.1%.
USA: The annual inflation rate for the United States was 3.4% for the 12 months ending December 2023, compared to the previous rate of 3.1%
EU: The inflation rate in the Euro Area went down to 2.8% year-on-year in January 2024 from 2.9% in the previous month, in line with market expectations. Meanwhile, the core rate, which excludes volatile food and energy prices, continued to ease to 3.3%, above forecasts of 3.2% but still reaching its lowest level since March 2022.
Consumer Confidence:
The Westpac Melbourne Institute Consumer Sentiment Index declined 1.3% to 81 in January from 82.1 in December. For consumers, the new year looks to have picked up where the old one left off: cost of living and high interest rates continuing to dominate and sentiment bumping around deeply pessimistic levels. The latest January read is in the bottom 7% of all observations since the survey was first run in the mid-1970s. More pessimistic starts to the year have only been seen during the deep recession of the early 1990s.
Employment:
Australia: The seasonally adjusted unemployment rate remained at 3.8% in December 2023. The participation rate also remained at 67%, with the number of employed people increasing to 14,246,000.
USA: Total nonfarm payroll employment rose by 353,000 in January, and the unemployment rate remained at 3.7%. Job gains occurred in professional and business services, health care, retail trade, and social assistance. Employment declined in the mining, quarrying, and oil and gas extraction industry.
Purchasing Managers Index:
The headline seasonally adjusted Judo Bank Australia Manufacturing PMI posted 50.1 in January, up from 47.6 in December, signaling that manufacturing sector conditions remained broadly unchanged at the start of 2024 after deteriorating in the preceding ten months. 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 surged to a 7-month high of 52.9 in January 2024, surpassing market expectations of 51, preliminary estimates showed. Improved demand conditions were associated with increased client referrals and reports of customers depleting their buffer stocks. However, there was a marginal decline in new export orders.
US Global Manufacturing PMI:
The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index (PMI) posted 50.7 in January, up from 47.9 in December and slightly higher than the earlier released ‘flash’ estimates of 50.3. The latest upturn ended a two-month sequence of decline and signaled the strongest improvement in operating conditions since September 2022.
Adviser Numbers:
Adviser numbers are off to a good start for 2024 with double-digit gains for the first two weeks of the year.
Wealth Data research to 11 January shows a net positive of 15 advisers joining this year to bring the total number to 15,643. However, estimated data for 2023 shows the number of adviser losses during 2023 was 173 advisers.
Sources: ABS, AFR, AWE, BLS, CoreLogic, Macquarie MWM Research, RBA, TradingEconomics, UBS, Wealth Data
Comments
Australian Economic Outlook for 2024
Australia’s economic outlook for 2024 is likely to be a tale of (roughly) two halves. The first half will likely see monetary policy continuing to bite, while the second half could bring monetary easing, tax cuts, stronger real wage growth, and improved sentiment. However, this narrative is riddled with uncertainty and risks particularly due to the delicate global economic outlook.
Monetary policy in advanced economies continues to present two-sided risks. Easing policy too soon could lead to a resurgence in inflation. Holding interest rates at an elevated level for too long could cure the disease but kill the patient. An added complication is that while most major central banks have maintained a ‘higher-for-longer’ approach to interest rates, financial markets expect cuts to be earlier and quicker than central banks have indicated. The easy miles in the battle against inflation seem to have been run; the final laps are likely to be the hardest.
Protracted conflicts and heightened tensions across the global economy could cause a renewal of supply-side issues. The most recent, and potentially most significant, flashpoint is in the Red Sea. Almost 12% of global trade flows through these waters, but unrest has forced container ships and oil tankers heading to ports in Europe and the United States to reroute around the Cape of Good Hope. While shippings costs and delivery times have increased sharply, oil prices have not spiked. Yet, an escalation of tensions in the Middle East could filter through to energy prices. Other global flashpoints, including the protracted war in Ukraine and tensions across the Taiwan Strait, present risks to the outlook.
China’s economic woes and growing opacity is another cause for concern. A debt-burdened property sector remains at the heart of the country’s economic challenges. Any further spillover to the shadow banking system could catalyse a vicious debt-deflation cycle that weighs on the global economy and Australia.
Additionally, countries that collectively represent 60% of global GDP are set to hold elections in 2024. This includes a presidential election in the United States. Any sharp political pivots may influence future opportunities for Australia, particularly in the green economy.
In Australia, domestic risks are also on the cards. In particular, consumer spending is likely to remain under pressure in the first half of 2024. Real household disposable income per capita has fallen for two years, the household savings ratio has dropped to 1.1%, and pandemic-era excess savings have been drawn down. Additionally, Australia’s relatively high share of outstanding mortgages with variable interest rates makes the economy more sensitive to monetary policy. A ‘higher-for-longer’ approach to interest rates in Australia carries an elevated degree of risk against this backdrop.
Additionally, rapid population growth due to record net overseas migration, a critical tailwind to growth in 2023, is likely to provide less support in 2024. Yet, the housing crisis that it unveiled could get worse before it gets better. Australia has among the lowest housing stock per adult when compared to other developed countries. This is unlikely to improve in the short-term. Low vacancy rates and elevated rental costs are expected to weigh on the economy.
The end of 2024 could still prove to be better than the beginning, but it’s an outlook fraught with risk.
Sources: AFR, Deloitte Access Economics
Unlocking the Potential of Aged Pension and Superannuation Benefits
The Australian Aged Pension scheme provides a wonderful safety net for those with limited assets in retirement, although many remain confused by how their age pension entitlements differ from so called superannuation income streams.
The Federal Government provides an income for all Australians who reach pension paying age, currently set at age 67, who can prove they are an Australian resident and can also pass the income and asset tests or means test.
If you are part of a couple who own a home, you can qualify for a full age pension of $42,988 a year; if excluding your home, your other assets, including super, total less than $451,500 and can qualify for an ever-reducing part-pension, until your assets reach $1,003,000 a year.
The income test allows a couple to earn up to $9,360 a year from investments and still receive the full age pension, and up to $95,336 a year and receive a partial pension. In assessing your income, Services Australia applies a complex formula called ‘deeming’.
The deeming rules assume you earn at least 0.25% a year on the first $100,200 in assets for a couple and then assume you are earning at least 2.25% a year on your remaining assets. You must pass both tests to receive a pension and Services Australia will use the test that leads to the lowest entitlement.
In addition to the income from investment assets, you can also receive income from genuine employment of up to $7,800 a year under the Work Bonus scheme and still receive a full pension. This was temporarily increased to $11,800 a year between December 1, 2022 and December 31, 2023.
The rates and limits vary depending on whether you are a homeowner or not and whether you are part of a couple. Superannuation is included as part of the assets and income test, although superannuation can provide income support in addition to the aged pension.
So, superannuation sits alongside the age pension scheme, effectively topping up the pension or other income older Australians receive as they move into retirement. It is not subject to any limitations or qualifying factors.
Under age 60 you are able to access your super when you retire or if you access a transition to retirement pension as long as you have reached your preservation age – this depends on when you are born.
Between 60-64 you can access your super when you retire, when you leave a job or if you open a transition to retirement income account while you’re still working (limits apply).
After 65 you are able to access your super with no restrictions, even if you have not retired yet.
This can significantly benefit older Australians as it means that they can effectively start a private pension to top up their age pension entitlements. For many, this makes the difference between living from one pension payday to the next, to having a bit of spare cash to help them get by.
The asset and income tests provide generous limits for older Australians to qualify for the age pension, with most of the so-called loopholes for effectively ‘hiding assets’ from Services Australia having been closed or significantly reduced.
Importantly, the family home is excluded from the asset test, meaning a potential age pension recipient can have millions of dollars tied up in their own home and still qualify for the full age pension, depending on the size of their remaining assets.
For couples with a significant age difference, it is also possible to effectively move assets from the older partner into the younger partner’s superannuation account, where it won’t be included in the asset test.
As long as the younger partner is under Age Pension age themselves, and their superannuation account is still in accumulation mode or can still receive contributions, the assets held within that account will not be included by Services Australia when assessing the couple’s overall assets.
It is important to remember that when moving funds from one partner to another, you can contribute up to $110,000 in one financial year as a non-concessional contribution and $330,000 as a non-concessional contribution in any three financial year period under the “three-year bring forward” rule.
With some simple planning, it is possible to contribute up to $440,000 from one partner to a younger partner in a relatively short timeframe and so reduce the assets included in the age pension asset test accordingly.
These rules, though, are extremely complex and are best utilised under the guidance of a qualified financial planner to ensure you make the right decisions and avoid any costly mistakes.