Market Wrap May 2019

07/06/2019
Posted in Wealth
07/06/2019 Level One

Markets

  • Market Performance – The ASX200 soared to an 11-year high to 6,451, up 1.7% for the month following the surprise Coalition election win.
  • Sector Performance – The top performing sector for May was the Telecommunications Sector returning 7.3% and the worst performing sector was the Consumer Staples Sector coming in at -4.2%.
  • Banks – The majority of the big 4 banks rose during the month of May, CBA 5.4%, ANZ 2.5% and NAB 4.5% all up. The exception was Westpac which was down 0.3.
  • Global – The S&P 500 in the US fell sharply on escalating trade war tensions, it was down 6.6% for May wiping out $4 trillion in value. The Shanghai Composite Index fell -5.8%.

 

Property

  • House Prices – In May housing prices fell 0.4% showing a slower rate of decline. The national average decline was 7.3% over the past twelve months. Sydney prices are down 14.9% from their July 2017 peak and Melbourne prices are down 11.1% from their November 2017 peak at 30/05/19.
  • Auctions – The last weekend of May saw auctions increase to 1654 properties nationally. This was down from the week prior of 2,055 auctions taking place. The preliminary auction clearance rate rising to 61.5% being the highest weighted average result in the past twelve months.
  • Credit – Private credit growth slowed to a 6 year low to 3.7% for the past 12 months, dropping 0.2% over the month of April.
  • Loans – In March, home loans fell 3.2% to the lowest levels seen in 6 years, an 18.4% fall from the prior year.
  • Rental Yields – Sydney recorded the lowest rental yields at 3.5% and the highest were in Darwin at 6.0% over the past 3 months. When expenses are deducted from this, the real yield is much lower.
  • Residential Approvals – Residential Building Approvals have slumped to a 6-year low, down 24.2% on an annualised basis.

 

Economy

  • GDP – GDP failed to meet expectations growing by only 0.4% in the March quarter, 1.6% on an annual basis, the slowest rate since 2009. GDP per person has extended into its third negative quarter on a per capita recession.
  • Interest Rates – The RBA has cut the cash rate for the first time in over 2 years from 1.5% to a record low level of 1.25% with expectations to fall further this calendar year in August.
  • Wage Growth – Wage Growth remained unchanged at 2.3% into the March quarter.
  • Minimum Wage – The FairWork Commission announced a rise in the minimum wage from July 2019 by 3.0% on an annual basis. The new minimum wage is $740.80 gross per week.
  • Car Sales – Car Sales fell in April to their worst since 2011 to 8.9% on an annual basis.
  • Serviceability Rate – APRA removed the 7.25% serviceability floor that has applied to new finance applications and replaced it with a 2.5% buffer above borrowing rates which will increase borrowing capacity significantly and ease the recent credit crunch.
  • Employment – The unemployment rate rose to 5.2%, driven by a 0.1% increase in the participation rate to 65.8%, a new record high. Actual employment rose by 28,400 jobs in April well above market expectations. This growth was supported by a rise of 34,700 part-time jobs and a decline of 6,300 full-time positions. ANZ job ads hit a 6-year low to be down 14.9% on an annual basis.
  • Exchange Rates – The Australian Dollar was weaker against the US Dollar at $0.693, falling 1.1c.
  • US – US jobs growth increased by 263,000 in April. The unemployment rate declined to 3.6%. Trade war tensions have escalated as President Trump announced a rise in tariffs from 10% to 25% levied on $200 billion of Chinese goods. In addition to announcing a 5% tariff on imported goods from Mexico to deter illegal immigration.

 

Comment

The head of the world’s largest fund manager Blackrock recently stated that we are at risk of a “melt-up”. Obviously, a meltdown is where we get a correction or crash. What he was referring to was the fact that with world growth slowing and already low interest rates globally – that if central banks lower rates further to support the economy we could see share markets rally further from what are, mostly 10 year plus highs in many major markets including ours here in Australia.

Sources: UBS, Westpac, ABS, US BLS, CoreLogic, BIS Oxford Economics

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