Market Wrap September 2024

Markets

Local:

The ASX200 index had a strong gain of 2.97% over September.

Global:

The S&P 500 rose 2.1% in September to continue a solid 2024.

The Dow Jones Industrial Average advanced 2%.

The Nasdaq Composite added 2.8%.

The Russel 2000 was once again the laggard only improving by 0.7% in September.

The pan-European STOXX® Europe 600 lost 0.3%,

dragged lower by its largest constituent, Novo Nordisk.

Gold:

The price of Gold surged 5.9% in September and set another new all-time high after breaking through $2,500 in August, ending the month at $2,661.90 /oz.

Iron Ore:

Iron ore price continued its decline over CY24, finishing September at US $94 /mt

Oil:

Brent also set a YTD low in September before rebounding in the back half of the month to US $74.95 as of September 23rd. Lower oil prices translated into lower gas prices, with the average price of gas falling by 11 cents in the month to US $3.30 per gallon as of September 30th.

Housing:

Economy

Interest Rates:

The RBA ended its September two-day board meeting by keeping its cash rate at 4.35%, the level it has remained since November 2023. The decision was as economists had expected. Inflation, the bank said in a statement, was “above target and is proving persistent”, and that bringing it back to within its 2%-3% target range was its “highest priority”.

Retail Sales:

Retail sales in Australia rose 0.7% month-on-month in August 2024. Up by 3.1% since August 2023.

Bond Yields:

Australia’s 10-year Government bond yield is currently 4.00%. As of 30 September 2024.

US 10-year Government bond yield remained steady in September to finish the month at 3.81%.

Bitcoin:

Rate cuts by the Fed and other national central banks helped drive cryptocurrencies higher in September, bucking an unfavorable seasonal trend. The price of Bitcoin surged to $65,663.69 in September, a rise of 11% in a month where the largest digital asset has declined by 5.9% on average over the last decade.

Exchange Rate:

The Aussie dollar fell slightly in September against both the American dollar, at $0.677, and the Euro at $0.609.

Inflation:

Australia: The monthly Consumer Price Index (CPI) indicator rose 2.7% in the 12 months to August 2024. Michelle Marquardt, ABS head of prices statistics, said: “Annual inflation was 2.7% in August, down from 3.5% in July, and is the lowest reading since August 2021.”

USA: The US inflation ticked lower for the fifth straight month, down to 2.53% in August; core inflation inched slightly higher to 3.20%, marking just the 2nd month out of the last 17 in which core inflation increased.

EU: The euro area annual inflation rate was 1.7% in September 2024, down from 2.2% in August. A year earlier, the rate was 4.3%. European Union annual inflation was 2.1% in September 2024, down from 2.4% in August. A year earlier, the rate was 4.9%.

Consumer Confidence:

The Westpac-Melbourne Institute Consumer Sentiment Index fell 0.5% to a reading of 84.6 in September 2024, down from 85 in August. According to Westpac, the ‘pessimism that has dominated for over two years now is still showing no signs of lifting’, although there are signs of a shift in focus. Cost-of-living pressures are becoming a little less intense and fears of further interest rate increases have eased, even as consumers have become more concerned about where the economy may be headed and the risk of unemployment.

Employment:

Australia: in September 2024: the unemployment rate remained at 4.1%. The participation rate increased to 67.2%. With employment increasing to 14,514,300 people.

USA: Total nonfarm payroll employment increased by 254,000 in September, and the unemployment rate changed little at 4.1%. Employment continued to trend up in food services and drinking places, health care, government, social assistance, and construction.

Purchasing Managers Index:

The headline seasonally adjusted Judo Bank Australia Manufacturing Purchasing Manager’s Index™ (PMI) posted 46.7 in September, down from 48.5 in August. This indicated an eighth successive monthly deterioration of manufacturing conditions and to the most pronounced degree 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® Business Activity Index posted 55.2 in September, down from 55.7 in August but still signaling a marked monthly increase in service sector output at the end of the third quarter, and one that was among the strongest in the past two-and-a-half years.

US Global Manufacturing PMI:

The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI®) remained below the 50.0 no-change mark in September, dipping to 47.3 from 47.9 in August. The index signaled a third consecutive monthly worsening in the health of the sector, and one that was the most pronounced since June 2023.

Adviser Numbers:

IFA has stated that between 1 July to 30 September 2024, there was a net rise of 159 advisers in the three-month period, an improvement from 108 in Q3 last year. This quarter’s growth was underpinned by the 201 new entrants who joined, compared with 131 in the same period last year.

Sources: ABS, AFR, AWE, BLS, CoreLogic, IFA, Macquarie MWM Research, RBA, TradingEconomics, UBS, Wealth Data

Comments

Australia’s population surge eases: The focus must shift to productivity

A recent ABS data release re-confirms Australia’s population surge has passed its peak – even though migration will likely take a little longer than expected to return to ‘normal’ levels. In annual terms, lower arrivals a

nd higher departures saw net overseas migration take a step back for the second straight quarter, and the natural increase (births less deaths) remains at its near lowest level on record. All things considered; the national population grew by 2.3% in the year to the March quarter of 2024 – still very strong by historical standards.

Even with a deceleration, net overseas migration continues to play a key role in supporting population growth, accounting for more than 80% of Australia’s total population increase in the year to the March quarter of 2024. The ongoing strength in migration has helped to officially close Australia’s pandemic population gap.

Leading indicators suggest that net overseas migration has remained strong into 2024. On average since the start of the year, monthly net permanent and long-term arrivals sit at approximately twice the pre-pandemic average. But that is unlikely to last; following two and a half years of uninterrupted gains, the number of temporary visa holders in Australia fell in the June quarter of 2024, with a further leveling off expected as the Government’s Migration Strategy starts to weigh on temporary migration.

The strength of migration has given businesses access to young and (in many cases) skilled workers to fill job vacancies. Indeed, Australia’s working-age population is trending towards 1.2 million people above the level seen before the onset of the pandemic. That is a key reason why employment growth has remained resilient in the face of slowing economic growth. A growing population is being absorbed by the labour market, with the employment to population ratio sitting just a touch off its record peak.

Overall, population growth has been a boon to the Australian economy – helping to fight off a recession as cost-of-living pressures weigh on household spending. But the benefits have not come without challenges. Indeed, over the past two years, migration has often been blamed for causing Australia’s housing and infrastructure shortages.

It can be easy to forget the root cause of the nation’s housing problem which has been a problem for many years – supply is failing to keep up with rising demand. Housing commencements have not kept up with the increase in households and fall short of addressing the structural undersupply in the market. This situation is made worse by high construction costs, labour shortages, and waves of business insolvencies.

On a related note, elevated population growth is putting continued pressure on transport, utilities, health, and education infrastructure across Australia – all of which rely heavily on public spending.

Migration has now passed its peak, meaning the key driver of the Australian economy will need to shift away from population growth and towards productivity growth. Current weakness in productivity growth follows a decades-long lack of economic reform that has discouraged the competition and dynamism needed in the private sector, which has become effectively dormant in Australia. As population growth wanes, the productivity agenda will be increasingly critical for Australia’s prosperity.

Sources: CEDA, Deloitte

Economic Outlook – NAB (The Forward View)

The big 4 banks will often try to predict economic outcomes that will impact us as consumers, we have summarised sum of the main points from NAB’s article The Forward View below.

• Recent data continues to show the economy experiencing a period of weak growth – with private sector activity impacted by the soft consumer. The Q2 national accounts showed modest growth of 0.2% q/q (1.0% y/y) – led by the public sector, with household consumption falling slightly and business and dwelling investment making little contribution.
• The NAB Monthly Business survey for August suggests that momentum has seen little improvement in Q3, with business conditions below average and confidence in negative territory. That said, capacity utilisation remains elevated, consistent with the view that aggregate demand and supply in the economy are yet to fully come into balance.
• Overall, our forecasts are largely unchanged in terms of growth, the labour market and inflation.
• Feeding through the Q2 National accounts data and slightly lowering our outlook for consumption sees GDP growth of 1.0% this year, 2.2% in 2025 and 2.3% in 2026.
• Our assessment of the labour market is that it continues to cool, even though trend employment growth has remained very strong over recent months. This has been reflected in a gradual rise in the unemployment rate, which we expect to continue over the next 6 months. The unemployment rate is expected to reach 4.5% by end 2024 and remain there through 2025 but importantly employment growth is expected to remain positive.
• Our inflation profile is unchanged. We see trimmed-mean inflation falling to 3.5% by end 2024 and back into the top of half of the RBA’s target band by end 2025.
• On rates, our view is also unchanged, where we expect the RBA to remain on hold until May 2025. However, the recent data flow skews the risk around our call to February. We still expect the RBA to cut rates by around 125pbs over a year or so once the cutting phase begins, taking the cash rate back to around neutral at 3.1%
• Overall, our forecasts still imply a soft landing for the economy and a gradual easing of the cash rate back towards neutral. This contrasts with some other advanced economies, including NZ, where growth has slowed more, and the labour market has loosened more significantly.

Sources: NAB

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.