Markets
Local:
The ASX 200 index gained 1.0% in June.
Global:
The S&P 500 posted seven new closing highs throughout June to finish 3.6% higher.
The Dow Jones Industrial Average gained 1.2%.
The tech-heavy Nasdaq 100 jumped 6.3% in June and posted another record high during the month.
The pan-European STOXX® Europe 600 index fell 1.1% over the month, but its YTD return is still positive at 9.4%.
Gold:
The spot price for Gold finished the month at $2,327 per ounce, no change from the month prior.
Iron Ore:
Iron Ore price fell by negative 9.37% in June to finish the month at US $107 /Mt.
Oil:
Brent Oil price rose slightly over June to end the month at US $86.76 /bbl.
Property
Housing:
CoreLogic’s national Home Value Index (HVI) increased a further 0.7% in June, taking growth to 8.0% across FY2023-24. This is the equivalent of a $59,000 increase to the median dwelling value in Australia, which is now $794,000. The annual rise was in stark contrast to the FY2022-23 when CoreLogic’s national index was down -2.0%. In that year, annual growth was weighed down by a -7.5% drop in values in the nine months following May 2022, when the cash rate target started to rise.
Despite the strong annual gain, the trend growth rate has eased since the highs of mid-2023 when the quarterly rate of change peaked at 3.3%. The most recent June quarter saw dwelling values rise by 1.8%, which is roughly in line with the March quarter (1.9%) and December quarter last year (1.8%).
Economy
Interest Rates:
The RBA has left interest rates on hold at a 12-year high of 4.35% for the fifth time in a row at its June 2024 meeting. The Board has reiterated that all options are still on the table in its fight against inflation.
Retail Sales:
Australian retail turnover rose 0.6% in May 2024. This followed a 0.1% rise in April 2024 and a 0.4% fall in March 2024. Robert Ewing, ABS head of business statistics, said: “Retail turnover was boosted this month by watchful shoppers taking advantage of early end-of-financial year promotions and sales events.
Bond Yields:
Australian 10-year yields decreased by 10 basis points over June to 4.31%.
The yield on the US 10-year government bond continued its downward trend to finish the month at 4.36%.
Bitcoin:
Bitcoin prices struggled through June to finish the month at $61,829, this is a fall of negative 9.23% from the month prior.
Exchange Rates:
The Aussie dollar continued to remain steady in June against the American dollar, at $0.662, and the Euro at $0.620.
Inflation:
Australia: Australia’s monthly inflation rate increased to its highest level in 2024 in the latest indication that the Reserve Bank won’t be cutting interest rates soon and might yet hike again. Consumer prices rose 4% in May from a year earlier and are up from the 3.6% pace recorded for April.
USA: Inflation in the US eased in May, with headline consumer prices recording zero growth, pushing the annual rate down to 3.3% from 3.4%. Core inflation – which excludes food and energy costs – rose just 0.2% in May, taking the annual rate down to 3.4% from 3.6%.
EU: In June 2024, inflation in the euro area rose by 2.5% compared to the same month in 2023. Thus, the rate slowed down compared to May, when it was 2.6%.
Consumer Confidence:
The Westpac–Melbourne Institute Consumer Sentiment Index rose 1.7% to 83.6 in June from 82.2 in May. Despite the improvement, consumer sentiment remains below its March level and still firmly in deeply pessimistic territory. The survey detail suggests positives from fiscal support measures are being negated by increased concerns about inflation and the outlook for interest rates.
Employment:
Australia: Australia’s seasonally adjusted unemployment rate inched down to 4.0% in May 2024 from April’s three-month high of 4.1%, matching market forecasts. The number of unemployed individuals fell by 9.2 thousand to 598.9 thousand, which is still nearly 110 thousand fewer than before the pandemic.
USA: Total nonfarm payroll employment increased by 206,000 in June, and the unemployment rate changed little at 4.1%. Job gains occurred in government, health care, social assistance, and construction.
Purchasing Managers Index:
The Judo Bank Australia Manufacturing PMI dropped to 47.2 in June 2024 from 49.7 in May, marking the fifth consecutive monthly deterioration in manufacturing sector conditions and at the fastest pace since May 2020. 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® increased for the second consecutive month in June, posting 55.3 following a reading of 54.8 in May. Activity in the sector has now risen in each of the past 17 months, with the latest expansion, the most pronounced since April 2022.
US Global Manufacturing PMI:
The seasonally adjusted S&P Global US Manufacturing PMI® ticked up to a three-month high of 51.6 in June from 51.3 in May. The index signaled a modest monthly improvement in business conditions.
Sources: ABS, AFR, AWE, BLS, CoreLogic, Macquarie MWM Research, RBA, TradingEconomics, UBS, Wealth Data
Comments
The Rocky Road for Retailers
The year has begun with a fizzle rather than a bang. Real spending decreased by 0.4% over the March quarter of 2024, reversing much of the Black Friday gains.
Indeed, retail has been subdued for some time now. In per capita terms, real retail turnover has not grown in quarterly terms for seven straight quarters since June 2022. Retail sales volumes per capita fell 1.0% over the March quarter and are now 3.6% lower than a year ago – reflecting just how much an average consumer has had to pull back on spending. It has also fed into rising business insolvencies in retail and hospitality.
Keeping spending at bay has been persistently high levels of price growth seen in essential spending outside of retail (rents, insurance, utilities) causing consumers to cut back on spending on discretionary retail.
The latest monthly Retail Trade figures released recently continue to show the sombre story with nominal retail turnover only increasing by 0.1% over the month of April. Additionally, Real GDP growth slowed over the March quarter, increasing by just 0.1% over the quarter, and just 1.1% over the past year. And while household consumption was a little stronger, growing by 0.4% over the March quarter, most of the growth was attributable to spending on services.
The immediate road ahead is looking rocky, particularly as unemployment rises further. But there is also some sunshine – real wage growth, stage 3 tax cuts and interest rate cuts (eventually) are expected to spur consumer spending later in 2024 and into 2025. Throwing a spanner in the works is the slowdown in population growth working through – mostly as the post-COVID catch-up runs its course. With per capita spending stagnating or contracting for the last seven consecutive quarters, more moderate population growth risks are dampening the retail recovery.
The Fair Work Commission’s decisions on the 3rd of June to increase the minimum and award wages by 3.75% are something of a double-edged sword for the retail sector. On the one hand this will provide a modest further boost to real wage growth for consumers, supporting the economy’s capacity to spend. On the other hand, the increase is higher than the retail sector was suggesting, and will place some businesses under further financial pressure, at a time when retail and hospitality insolvencies are already rising.
Despite the uncertainties ahead, real retail turnover is expected to increase from 0.0% in calendar 2024 to 2.3% in 2025. Household goods turnover should pick up more with better economic conditions and with an uplift in national building activity, supported by the Government’s ambitious housing targets. The additional dollars from tax cuts later this year may bump up spending at cafes, restaurants and takeaway in the September and December quarters.
Sources: ABS Retail Trade, AFR, Deloitte Access Economics
The Forward View – NAB
Economic Overview – What do the big banks think.
- NAB’s overall view of the economy is largely unchanged – with growth tracking through a very weak period and the expectation that the labour market will soften further through 2024. They continue to expect inflation to moderate – though this process has not been smooth – and the RBA to have the scope to begin easing rates later in the year. With GDP growth rebounding somewhat in H2, unemployment stabilising at around 4.5% and inflation returning to the target band by late 2025 they continue to see a relatively soft landing.
- Indeed, GDP grew just 0.1% q/q in Q1, to be up 1.1% y/y. This was in line with NAB’s forecasts but, in the detail, the picture has changed somewhat with revised estimates of overseas travel leaving household consumption growth looking stronger at 1.3% y/y. The softness in the quarter came largely from private investment – especially construction – with offsetting movements in trade and inventories.
- Higher frequency indicators, including business conditions in the NAB Monthly Business Survey, suggest growth will likely be no better in Q2. They continue to expect a pickup in activity in the second half of the year with easing inflation and tax cuts supporting households. On balance their year-ended growth forecast is now marginally lower at 1.3% for 2024, with growth still likely to return to trend rates around 2.25% beyond that.
- Despite the slowing in growth, the labour market has remained resilient with strong employment growth seeing the unemployment rate at 4.0% in May. We continue to expect further gradual easing in the labour market, with the unemployment rate rising to around 4.5% by end-2024. This is consistent with further easing in the pace of wage growth.
- The question remains how long rates will need to remain at their current restrictive level to see inflation back into the target range. NAB still see a first cut in November, but the exact timing is heavily data dependent. Underlying inflation remains around 4.0% y/y and the data flow from here will be critical – especially the Q2 CPI out in late July. So too will be the assumed kick in growth in H2 2024.
Sources: NAB – The Forward View
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.